Opinion ID: 223275
Heading Depth: 1
Heading Rank: 3

Heading: Regulatory Framework and the FDIC's Determination

Text: The FDIC serves as an insurance company created by Congress to promote stability and soundness in the nation's banking system. Jones v. FDIC, 748 F.2d 1400, 1402 (10th Cir.1984). Accordingly, one of the FDIC's principal duties when it acts as receiver is to make insurance payments to the depositors of the failed institution. Id. The FDIC is required by the Federal Deposit Insurance Act to aggregate the amounts of all deposits in the insured depository institution which are maintained by a depositor in the same capacity and the same right, and insure them up to the standard maximum deposit insurance amount (SMDIA). 12 U.S.C. § 1821(a)(1)(C). [1] The statute, however does not define capacity or right. Instead, Congress authorized the FDIC to promulgate regulations to define any terms necessary to implement the statute. Id. § 1819(a). The FDIC chose to effectuate its congressional mandate by erecting a regulatory framework based on ownership rights and capacities: The insurance coverage provided by the Act ... is based upon the ownership rights and capacities in which deposit accounts are maintained at depository institutions. All deposits in an insured depository institution which are maintained in the same right and capacity... shall be added together and insured in accordance with this part. Deposits maintained in different rights and capacities, as recognized under this part, shall be insured separately from each other. 12 C.F.R. § 330.3(a). The deposit account rights and capacities recognized in the FDIC's regulations pertinent to the instant appeal are (i) corporate accounts, id. § 330.11(a); and (ii) annuity contract accounts, id. § 330.8. Deposit accounts falling into the corporate account category shall be added together and insured up to the SMDIA in the aggregate. Id. § 330.11(a)(1). By contrast, [f]unds held by an insurance company or other corporation in a deposit account for the sole purpose of funding life insurance or annuity contracts and any benefits incidental to such contracts, shall be insured separately in the amount of up to the SMDIA per annuitant,  provided certain additional requirements are satisfied. [2] Id. § 330.8 (emphasis added). That is to say, corporate accounts are only eligible for insurance coverage up to the SMDIA, while funds held in an annuity contract account could potentially be insured for many multiples of that amount. Shortly after Columbian went into receivership, the FDIC began an investigation to determine the insurance treatment appropriate for Plaintiffs' various accounts. Plaintiffs indicated the Challenged Accounts were maintained for and on behalf of their annuity customers, to fund annuity contracts and the benefits incidental to such contracts, and that they therefore constituted annuity contract accounts, entitled to per annuitant insurance under 12 C.F.R. § 330.8. The FDIC, however, concluded the Challenged Accounts would be insured according to their denomination on the Bank's records: because the Challenged Accounts were each entitled operating account, they were to be aggregated as corporate accounts and insured, together with each Plaintiffs' other respective corporate accounts, up to the SMDIA of $100,000. Consequently, the approximately $11.3 million in deposits contained in the Challenged Accounts were entitled to merely $200,000 total insurance, with the remainder to be paid on a pro rata basis from Columbian's liquidated assets. Had the Challenged Accounts been deemed eligible for per annuitant coverage under § 330.8, it appears they would have been insured in the total amount of $8,605,261.94. The FDIC's final determination does not explicitly state as much, [3] but the parties agree its conclusion was predicated upon an application of 12 C.F.R. § 330.5(a)(1), which provides that: [I]n determining the amount of insurance available to each depositor, the FDIC shall presume that deposited funds are actually owned in the manner indicated on the deposit account records of the insured depository institution. If the FDIC, in its sole discretion, determines that the deposit account records of the insured depository institution are clear and unambiguous, those records shall be considered binding on the depositor, and the FDIC shall consider no other records on the manner in which the funds are owned. If the deposit account records are ambiguous or unclear on the manner in which the funds are owned, then the FDIC may, in its sole discretion, consider evidence other than the deposit account records of the insured depository institution for the purpose of establishing the manner in which the funds are owned. Despite the general requirements of this paragraph... if the FDIC has reason to believe that the insured depository institution's deposit account records misrepresent the actual ownership of deposited funds and such misrepresentation would increase deposit insurance coverage, the FDIC may consider all available evidence and pay claims for insured deposits on the basis of the actual rather than misrepresented ownership. Deposit account records are defined as account ledgers, signature cards ... and other books and records of the insured depository institution ... which relate to the insured depository institution's deposit taking function. 12 C.F.R. § 330.1(e). In the case of the Challenged Accounts, the signature cards indicated that the ownership of the account was a corporation for business purpose, and Columbian's account ledgers described the Challenged Accounts as operating accounts. Exercising its prerogative under § 330.5, the FDIC determined these deposit accounts records clearly and unambiguously indicated the Challenged Accounts were corporate accounts, and refused to consider Plaintiffs' evidence to the contrary. Plaintiffs contend the FDIC acted arbitrarily and capriciously in relation to the Challenged Accounts because § 330.5 is inapplicable to the determination whether a deposit account is entitled to per annuitant coverage under § 330.8. They assert that the touchstone of an annuity contract account under FDIC regulations is its intended purpose. See id. § 330.8(a) (defining annuity contract accounts as [f]unds held by an insurance company ... in a deposit account for the sole purpose of funding life insurance or annuity contracts (emphasis added)). Section 330.5, by contrast, provides a rule governing the evidence the FDIC may consider when determining a deposit account's ownership. Id. § 330.5(a)(1) (providing that the FDIC shall presume that deposited funds are actually owned in the manner indicated on the deposit account records (emphasis added)). Because the two regulations, in their reading, have nothing to do with one another, Plaintiffs assert it was arbitrary and capricious for the FDIC to artificially restrict its analysis of the Challenged Accounts to Columbian's deposit account records. Plaintiffs' preferred reading conflicts with the plain language of the contested regulations. Section 330.3(a) provides that FDIC insurance coverage is based upon the ownership rights and capacities in which deposit accounts are maintained. (emphasis added). There is no indication that annuity contract accounts under § 330.8 are exempted from this general maxim. Section 330.5(a)(1), in turn, directs the FDIC to presume that deposited funds are actually owned in the manner indicated on the deposit account records of the insured depository institution. Nothing in § 330.5 indicates that funds purportedly held in an annuity contract account are exempted from this rule. Finally, § 330.8(a) describes the manner of ownership that must be present in order for a deposit account to be insured on a per annuitant basis: the funds in that account must be held by an insurance company... for the sole purpose of funding life insurance or annuity contracts. In the final analysis, the regulatory framework is seamless. No plausible reading of these regulations supports Plaintiffs' contention that a depositor, simply by claiming his deposit account was owned with the intention of funding annuity payments, can evade § 330.5's requirement that such intention be clearly and unambiguously indicated upon the bank's deposit account records. If there were any doubt this reading is correct, such doubt is obviated by the FDIC's longstanding interpretation of the regulations. See Bell v. FDIC (In re Collins Secs. Corp.), 998 F.2d 551, 554 (8th Cir.1993) (discussing the FDIC's longstanding practice of looking primarily at the failed bank's deposit account records in determining insurance claims). In promulgating § 330.5, the FDIC explained that its record-keeping and evidentiary regulations were based upon a basic principle: In paying insurance, the FDIC is entitled to rely on the account records of the failed depository institution. Simplification of Deposit Insurance Rules, 63 Fed. Reg. 25750, 25751 (May 11, 1998) (codified at 12 C.F.R. pt. 330) (emphasis added). The highlighted language indicates that the evidentiary rule of § 330.5 was meant to apply universally. As the FDIC explained, its policy of strict reliance on the account records serves multiple purposes, allowing the FDIC to quickly estimate its insurance liability and pay insured depositors, while limiting the opportunities for depositors to fraudulently increase their insurance coverage. Id. [4] The rationale for § 330.5 applies with equal force to all categories of deposit account ownership, including annuity contract accounts. Because the FDIC's position that § 330.5 operates to restrict the evidence that may be considered when determining whether a deposit account qualifies for per annuitant insurance under § 330.8 is reasonable, it must be accepted. Fed. Express Corp., 552 U.S. at 397, 128 S.Ct. 1147; see also Jones, 748 F.2d at 1405 (When an agency is interpreting its own regulation, the Courts have given added deference to the agency's construction and the standard of review ... is [the] plainly erroneous or inconsistent standard.). We therefore reject Plaintiffs' contrary reading of the regulations. Furthermore, because the FDIC's final determination regarding the Challenged Accounts comports with its reasonable interpretation of the regulations, that determination was neither arbitrary nor capricious.