Court Opinion

ID: 9537946
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:27:45.18389+00
Date Added: 2024-06-11T14:55:32.612189
License: Public Domain

HOWE, Associate Chief Justice
(dissenting):
I dissent.
The thesis of the majority states:
[T]he only sanction the Department can impose on a licensed financial institution for misconduct of any kind is to suspend or revoke the financial institution’s operating license. Because section 63-30-10(3) immunizes any injuries arising out of, inter alia, “the failure or refusal to issue, deny, suspend, or revoke, any ... license, certificate, approval, order, or similar authorization,” any injury resulting from a Department action or inaction ultimately results from a failure to suspend or revoke Credit’s license, an immune act.
Majority op. at 511. With that conclusion, the majority sweeps under the rug of governmental immunity the total failure of the Department to detect and to correct the alleged deceptive and illegal practices of Watson and his West America Credit Corporation.
I view this case quite differently. The plaintiff does not contend that the Department was negligent in licensing or failing to revoke or suspend the license of either of the West America Corporations. Quite to the contrary, the plaintiff contends that the Department was negligent in its alleged statutory duty to “visit and examine” West America Credit at least once a year as directed by Utah Code Ann. § 7-1-8 (1971) and in its failure to supervise the operation of West America Credit as allegedly required by § 7-1-7 (1971).
The purpose of the statutory requirements that the Department visit, examine, and supervise financial institutions is to timely discover unsound and improper practices and to direct their correction promptly before they cause losses. Section 7-1-8 provides:
At every such examination careful inquiry shall be made as to the condition and resources of the institution examined, the mode of conducting and managing its affairs, the official actions of its directors and officers, the investment and disposition of its funds, the security afforded to members, if any, and to those by whom its engagements are held, whether or not it is violating any of the provisions of law relating to corporations or to the business of the institution examined, whether or not it is complying with its articles of incorporation and bylaws, and as to such other matters as the commissioner may prescribe.
The Department has many powers to deal with problems discovered upon examination. Section 7-1-13 provides that if upon examination of an institution, any officer or employee is found to be dishonest, reckless, or incompetent or fails to perform any duty of his office, the commissioner of the Department shall notify the board of directors of such institution in writing and *514the board shall meet within 20 days after receipt of notification to consider such objections. If the board finds the objections well-founded, the officer or employer shall be immediately removed. Under section 7-1-14, the commissioner is directed to require the board of directors of every institution under his supervision to examine the loans, discounts, and overdrafts “with a special purpose of ascertaining the value and security thereof and of the collateral security, if any, given in connection therewith, and to inquire into such other matters as the bank commissioner or bank examiner may require.” Again, under section 7-1-16, the bank commissioner may call upon any institution for a report of its condition at the close of business on any day within the preceding three months. If any institution fails to make such a report within 20 days after the call, it is subject to a penalty of $50 for each day’s delay. Section 7-1-19. It is a felony for any officer, director, or employee to submit a false report. Section 7-1-20. Under section 7-1-23, the bank commissioner or examiner is directed to inform the county attorney of any violations of law which are discovered upon examination.
All of the foregoing statutes are designed to keep financial institutions solvent and to provide for supervision by the Department so that trouble can be detected early, before it causes insolvency. These statutes clearly demonstrate that the purpose of the examination and supervision by the Department is to prevent an institution from carrying on practices which will eventually lead to its insolvency and loss of depositors’ money. The statutes give the Department power to deal with problems long before suspension and revocation of an institution’s license is even an option.
In the instant case, West America Credit Corporation was selling what it denominated “gold bond accounts” to the public. These accounts totalled almost one million dollars. Yet West America Credit as a supervised lender had no statutory right to accept deposits at all. The plaintiffs allege that the Department was informed by Watson himself that this practice was going on. Regardless, even one visit and examination would have disclosed this deceptive and unlawful practice as well as the fact that nearly all of the assets of West America Credit had been transferred out of that corporation in order to set up West America Thrift. This transfer left the depositors in West America Credit virtually unsecured. Had the Department been performing what the plaintiff contends was its statutory duties, these deficiencies could have been “nipped in the bud” instead of being allowed to continue for at least five years until West America Credit became insolvent. The bankruptcy judge noted that due to Watson’s mismanagement, deposits of almost one million dollars were transformed in five years into an $887,-830.58 net loss. During that time, Watson drew directly to himself in the form of wages and commissions over $200,000 and supported a fleet of automobiles for himself and his family for an additional cost of about $80,000.
It is illogical and factually incorrect to hold, as does the majority, that this total failure of the Department is immunized because the only sanction which could be imposed by the Department would be suspension or revocation of license. Suspension and revocation are admittedly powers of the Department, but they are exercised only as a last resort. Had the Department been doing its alleged statutory duties, the financial problems and illegal practices might have been detected and corrected early, long before conditions deteriorated to the point where suspension or revocation had to be considered. As I have already pointed out, the Department has many other powers related to its authority to examine and supervise financial institutions. Another one of those powers is to issue cease and desist orders. In fact, the commissioner on December 26, 1979, issued a cease and desist order to West America Credit under the authority of section 7-2-1(2). That order directed it to cease references to “savings,” “deposits,” “supervision,” or “regulation” in all its future advertising. The order was prompted by advertising of West America Credit which the commissioner opined was deceptive. Eight months later, the Department took possession of Credit after the Department had made an investigation of its assets and *515operations. However, this examination came much too late to save the depositors’ money.
Section 63-30-10(4) (1978) (amended 1982 & 1985), which provides that immunity is not waived for injury that arises out of a failure to make an inspection or by reason of making an inadequate or negligent inspection of any property, presents no problem here. By the very language of subsection (4), it is inapplicable here since there is no complaint of negligent inspection of property. The cases which we have decided under subsection (4) confirm that it pertains to inspection of tangible property. In Velasquez v. Union Pacific R.R., 24 Utah 2d 217, 218-19, 469 P.2d 5, 6 (1970), the plaintiff complained that the defendant, the Utah Public Service Commission, had not established a program to discover dilapidated railroad crossing signs and to replace them. In White v. State, 579 P.2d 921, 923 (Utah 1978), the plaintiff, who was injured while working with machinery in a vegetable cannery, contended that the defendant was aware, or should have been aware, of several violations of the safety regulations of the Utah Occupational Health and Safety Act by inspection. In the instant case, the plaintiff does not complain of the Department’s failure to make an inspection of tangible property but of the Department’s failure to examine and supervise West America Credit. I do not believe that the legislative intent in subsection (4) was to categorize financial examinations and supervision as “inspections of property.” Therefore, subsection (4) does not confer any immunity upon the Department in this action.
I would reverse the summary judgment granted the Department and remand the case to the trial court for a determination of the statutory duty of the Department in this case and the other issues.
STEWART, J., concurs in the dissenting opinion of HOWE, Associate C.J.