Opinion ID: 2048586
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Heading: Statutory and constitutional due process.

Text: On July 1 the superintendent advised the bank in no uncertain terms that unless the bank immediately provide[d] a written plan ... for the sale, merger, or recapitalization of the bank by July 30, the division of banking would reserve the right to exercise in our sole discretion, any and all rights set forth in Iowa Code Chapter 524 (1987), including, but not limited to, actions available under sections 524.224 and .226 (1987). At the heart of this controversy lies the parties' dispute over whether this written notice triggered a contested case proceeding under the Iowa Administrative Procedure Act (IAPA) or merely constituted other agency action subject to judicial review. As we said in Allegre v. Iowa State Board of Regents, `[t]he importance of the distinction lies in the procedural due process which attaches to contested cases.' 349 N.W.2d 112, 114 (Iowa 1984) (quoting Polk County v. Iowa State Appeal Bd., 330 N.W.2d 267, 276 (Iowa 1983)). Under the IAPA, a contested case is defined as an agency proceeding in which the legal rights of a party are required, by constitution or statute, to be determined by an agency after opportunity for evidentiary hearing. Iowa Code § 17A.2(2); Allegre, 349 N.W.2d at 114. We determined in Allegre that if no hearing is required, or the hearing required is not an evidentiary hearing, then the proceeding properly falls into the residual category of other agency action. Id.; see also Iowa State Appeal Bd., 330 N.W.2d at 277; Bonfield, The Definition of Formal Agency Adjudication Under the Iowa Administrative Procedure Act, 63 Iowa L.Rev. 285, 288 (1977). This latter category, though subject to judicial review under a reasonableness standard, need not be preceded by a formal evidentiary hearing. See Allegre, 349 N.W.2d at 116; Security Savs. Bank v. Huston, 293 N.W.2d 249, 251 (Iowa 1980); Bonfield, supra, at 325-37 (discussing exceptions to evidentiary hearing requirement even in contested cases if premised on inspections or examinations). We turn then to a consideration of the bank's claim that both the IAPA and the Banking Act require contested case proceedings in the event of a bank takeover. To begin, Iowa Code section 524.225 unquestionably provides that [j]udicial review of the actions of the Superintendent may be sought in accordance with the terms of the Iowa administrative procedure Act. Reference to this general provision, however, begs the question of what manner of review is contemplated by the statute. That, as we have said, turns on the nature of the action. The statute which defines the nature and scope of the superintendent's authority to take over management of a state bank is Iowa Code section 524.224. The discretionary breadth of the authority conferred on the superintendent is unmistakable: the superintendent may take over the management of a state bank whenever it appears that certain enumerated criteria have been met (e.g., violation of law, impaired capital, unsound business practices). See generally Iowa Code § 524.224. Conspicuously absent from the statute is any suggestion that this extraordinary action must be preceded by notice and opportunity for evidentiary hearing. This is in marked contrast to the opportunity for hearing afforded under section 524.223 in connection with proposed cease and desist orders; to the section 524.305(3) hearing granted on pending applications for incorporation of state banks; and the hearing furnished in connection with pending applications for merger or consolidation of banks by the superintendent under section 524.1403. We think the legislature's silence regarding the right to a formal adjudicatory procedure under section 524.224 manifests a deliberate choice made in recognition of the highly sensitive nature of bank failures. Historically, the rationale for vesting such broad discretion in the superintendent is based on the recognition that protracted, public hearings on a bank's financial condition would prompt a loss of depositor confidence and the resultant run on withdrawals, loss of a bank's business good will and general adverse effect on the economic soundness of the surrounding community. Priest v. Whitney Loan & Trust Co., 219 Iowa 1281, 1293-94, 261 N.W. 374, 380-82 (1935); cf. Fuentes v. Shevin, 407 U.S. 67, 92, 92 S.Ct. 1983, 2000, 32 L.Ed.2d 556, 576-77 (1972) (the court has allowed summary seizure ... to protect against the economic disaster of a bank failure). Nor has the bank persuaded us that the potential deprivation of property rights inherent in a bank takeover compels a prior evidentiary hearing in order to abide with constitutional notions of due process. That argument was soundly rejected by the United States Supreme Court in Fahey v. Mallonee, 332 U.S. 245, 67 S.Ct. 1552, 91 L.Ed. 2030 (1947). Moreover, the Court recently reaffirmed Fahey's rationale in a case involving the same actors as in the case before us. FDIC v. Mallen, 486 U.S. ___, 108 S.Ct. 1780, 100 L.Ed.2d 265 (1988). In Fahey, a bank complained that federal regulations provided for hearing after receivership but not before, in alleged violation of the bank's claimed right of due process. Discounting this argument, the Court found no constitutional deprivation given the highly regulated nature of the banking industry, reasoning that [t]he delicate nature of the institution and the impossibility of preserving credit during an investigation has made it an almost invariable custom to apply supervisory authority in this summary manner. It is a heavy responsibility to be exercised with disinterestedness and restraint, but in the light of the history and customs of banking we cannot say it is unconstitutional. Fahey, 332 U.S. at 253-54, 67 S.Ct. at 1556, 91 L.Ed. at 2039. Addressing a similar claim in connection with the FDIC's summary suspension of the president of the Farmers State Bank of Kanawha, the Supreme Court reiterated its view that [a]n important government interest, accompanied by a substantial assurance that the deprivation is not baseless or unwarranted, may in limited cases demanding prompt action justify postponing the opportunity to be heard until after the initial deprivation. FDIC v. Mallen, 486 U.S. at ___, 108 S.Ct. at 1787, 100 L.Ed.2d at 278. Thus the Court held that the post-suspension procedure authorized by federal banking regulations was not unconstitutional on its face or as applied in the Kanawha case. See id. at ___, 108 S.Ct. at 1792, 100 L.Ed.2d at 283. Applying these principles to the case before us, we are convinced the district court accorded the bank the process to which it was statutorily and constitutionally entitled. Neither statute nor constitution conferred on the bank a right to a contested case hearing under the circumstances before us. Accordingly, it was entitled only to those procedural safeguards voluntarily adopted by the agency, the procedural requirements of the banking act, and the general constitutional and statutory requirement that agencies act reasonably. Allegre, 349 N.W.2d at 116. That reasonableness is amply demonstrated by the record before us. For seven years, the superintendent warned the bank that its authorization to do business was in jeopardy. When the bank's inaction finally impaired the integrity of its deposits, the superintendent furnished written notice of the specific conditions the bank would have to meet to retain its autonomy. Rather than requesting an agency hearing to challenge this proposed action, the bank waited until two days prior to the takeover and then filed a petition for stay and judicial review in the district court. Curiously, the bank then claimed the court had no authority to pursue judicial review because no record had been made before the agency. Making the best of this anomalous situation, the court properly respected the sensitive nature of the superintendent's proposed action while at the same time giving the bank its full opportunity to meet the superintendent's mandate. When the bank failed to do so and the agency action became final, the court then enforced the bank's right to contest the agency's action by way of a hearing. Because this was not a contested case proceeding but, rather, other agency action, the court was free to hear and consider such evidence as it deem[ed] appropriate. Iowa Code § 17A.19(7); see also Allegre, 349 N.W.2d at 116 n. 2. In sum, the process employed comported with our statutes and adequately protected the bank from the risk of a mistaken deprivation. Cf. Woods v. Federal Home Loan Bank Bd., 826 F.2d 1400, 1411 (5th Cir.1987); Guaranty Savs. & Loan Ass'n v. Federal Home Loan Bank Bd., 794 F.2d 1339, 1341-42 (8th Cir.1986). The bank's assignment of error is without merit.