Opinion ID: 409289
Heading Depth: 2
Heading Rank: 1

Heading: Power To Close Under California Law

Text: 11 The district court held that no closure occurred within the meaning of section 1729(c)(2)(A). It reasoned that the Commissioner had no express or implied power to close Fidelity under California law. In addition, the district court found that even if it were to imply the power to close Fidelity from California Financial Code § 9010, the Commissioner, under California law, was stayed from exercising the power for ten days following seizure in order to allow the association to seek judicial review. We disagree. 12 The Commissioner may take possession of a savings and loan association operating in an unsafe or injurious manner and conduct its business until control is returned to the association or the association's affairs are liquidated. Cal. Fin. Code §§ 9001, 9002, 9011 (West 1981); Pacific States Savings & Loan Co. v. Hise, 25 Cal.2d 822, 835-36, 155 P.2d 809 (1945) (en banc). Admittedly, no provision in the Financial Code expressly states that the Commissioner may close an association. The California Supreme Court, however, has broadly construed the statutory powers of the Commissioner. Evans v. Superior Court, 20 Cal.2d 186, 190-91, 124 P.2d 820 (1942) (Evans II ); Evans v. Superior Court, 14 Cal.2d 563, 572, 96 P.2d 107 (1939), appeal dismissed, 309 U.S. 640, 60 S.Ct. 893, 84 L.Ed. 995 (1940) (Evans I ); Wilson v. Superior Court, 2 Cal.2d 632, 635-37, 43 P.2d 286 (1935). Recognizing the legislature's intent to provide a comprehensive plan for supervising state savings and loans, Trede v. Superior Court, 21 Cal.2d 630, 633-34, 134 P.2d 745, cert. denied, Pacific States Savings & Loan Co. v. Trede, 320 U.S. 739, 64 S.Ct. 39, 88 L.Ed. 438 (1943), the California Supreme Court has found that the Commissioner has implied powers beyond the express provisions of the statutes substantially similar to those of a trustee of private property. See Evans I, 14 Cal.2d at 572-73, 96 P.2d 107. The power to close an association surely is among the powers properly implied from the Commissioner's power to take possession of an association for the purpose of liquidation. 13 California Financial Code § 9010 also supports this result. It provides that the Commissioner may take such other acts as are necessary or expedient to collect, conserve, or protect the association's business, property, and assets. See also Cal. Fin. Code § 5250. To conserve effectively a failing association's assets, the Commissioner must have the power to close an association when in her discretion it is necessary. 9 14 Furthermore, where the FSLIC has been appointed state receiver by the Commissioner, as in this case, a reasonable interpretation of Financial Code § 9103 is that the FSLIC has the power to close a state-chartered savings and loan association. This is true because section 9103 provides that the FSLIC shall have all the powers and be subject to all the duties of the Commissioner, and in addition shall have all the rights, privileges and powers conferred upon it by federal statutes now or hereafter enacted. California law thus incorporates all federal law concerning the powers of the FSLIC as receiver. Where the FSLIC has been appointed for the purpose of liquidation, federal law authorizes it to take such action as may be necessary to put (the association) in a sound and solvent condition, ... or ... to proceed to liquidate its assets in an orderly manner. 12 U.S.C. § 1729(b); see also 12 U.S.C. § 1729(d); 12 C.F.R. §§ 549.3, 569a.6 (1982). 10 The FSLIC's power to liquidate in an orderly manner necessarily includes the power to close a savings and loan, a power given by federal law and explicitly incorporated into California law by section 9103. 15 We also disagree with the district court's holding that closure on April 13, 1982, was precluded by Financial Code § 9003, which provides an automatic ten-day stay of liquidation following the taking possession of an association by the commissioner. 11 In Evans II, the California Supreme Court stated that the thirty-day stay period authorized by California Financial Code § 13.12, the predecessor to Financial Code § 9003, is provided as an automatic stay of the exercise of the powers of liquidation by the Commissioner, as distinguished from a stay of the process of liquidation, in order to give the association an opportunity to obtain an injunction (emphasis added). 20 Cal.2d at 189, 124 P.2d 820 (dictum). This distinction appears to be aimed at safeguarding the right to a review in the state court while at the same time recognizing the existence of those powers necessary to protect the assets from further deterioration and impairment pending such review. Thus, seizure of an association and the holding of its assets is a part of the process of liquidation. 20 Cal.2d at 189, 124 P.2d 820. See also Trede, 21 Cal.2d at 634, 134 P.2d 745 (right of Commissioner to liquidate association is delayed pending the outcome of suit challenging Commissioner's actions); State Savings & Commercial Bank v. Anderson, 165 Cal. 437, 447-48 (1913), aff'd mem., 238 U.S. 611, 35 S.Ct. 792, 59 L.Ed. 1488 (1915) (parallel provision of Bank Act allows superintendent to take temporary custody of bank pending action challenging superintendent's findings). 16 It is true, however, that Evans II did not address the question whether closing is to be regarded as part of the power of liquidation rather than the process of liquidation. 20 Cal.2d at 189, 124 P.2d 820. We believe the latter is the more apt characterization. Because closing sequentially must precede the definitive acts of liquidation and frequently will be necessary to preserve the assets, closing should be viewed as part of the process of liquidation under California law. So regarded, a closing is not subject to an automatic stay. 12 Cf. Title Guaranty & Surety Co. v. Idaho, 240 U.S. 136, 141-42, 36 S.Ct. 345, 346, 60 L.Ed.2d 566 (1916) (distinguishing closing from liquidation for purposes of the Due Process Clause of the Fourteenth Amendment). An automatic ten-day stay of the Commissioner's power to close an association following its seizure could result in a run on the association that would impair or destroy the Commissioner's ability to protect association assets in the interest of creditors and claimants pending liquidation of an insolvent association. Cal. Fin. Code § 9010; Trede, 21 Cal.2d at 633-34, 134 P.2d 745. 17 This interpretation fully satisfies the requirements of procedural due process. North American Building-Loan Ass'n v. Richardson, 6 Cal.2d 90, 101, 56 P.2d 1221 (1936). The post-seizure review provided by section 9003 affords a constitutionally proper procedure. Allowing the Commissioner to close the association before ten days have passed not only is sensible but also constitutionally impeccable. Thus, the FSLIC acting as state receiver had the power under California law to close Fidelity immediately upon taking possession. 13