Court Opinion

ID: 2963871
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:16:35.195561+00
Date Added: 2024-06-11T11:42:47.729974
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

          No. 95-1492

                               MIGUEL VILLAFA E-NERIZ,
                        INSURANCE COMMISSIONER OF PUERTO RICO,

                                Plaintiff - Appellant,

                                          v.

                    FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,

                                Defendant - Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                  [Hon. Juan M. P rez-Gim nez, U.S. District Judge]
                                               ___________________

                                 ____________________

                                        Before

                               Torruella, Chief Judge,
                                          ___________
                           Campbell, Senior Circuit Judge,
                                     ____________________
                              and Watson,* Senior Judge.
                                           ____________

                                _____________________

               Carlos J. Morales-Bauz , with whom Rossell -Rentas & Rabell-
               _______________________            _________________________
          M ndez was on brief for appellant.
          ______
               J.   Scott  Watson,   Counsel,  Federal   Deposit  Insurance
               __________________
          Corporation, with  whom Ann S. DuRoss,  Assistant General Counsel
                                  _____________
          and  Richard J.  Osterman, Jr.,  Senior Counsel,  Federal Deposit
               _________________________
          Insurance Corporation, were on brief for appellee.

                                 ____________________

                                   February 2, 1996
                                 ____________________
                              
          ____________________

          *  Of the United States  Court of International Trade, sitting by
          designation.

                    TORRUELLA, Chief Judge.  This appeal seeks review of  a
                    TORRUELLA, Chief Judge.
                               ___________

          decision  of the United States District Court for the District of

          Puerto Rico, which entered summary judgment on behalf of appellee

          the  Federal  Deposit  Insurance  Corporation  ("FDIC"),  in  its

          corporate capacity.  Appellant Miguel  Villafa e-Neriz, Insurance

          Commissioner of Puerto Rico (the "Commissioner") seeks to recover

          FDIC  deposit insurance for the $50,000 value of a certificate of

          deposit (the "Certificate" or the "CD") purchased by the Guaranty

          Insurance  Company  ("Guaranty"),  which   was  assigned  to  the

          Commissioner  simultaneously  with its  purchase.    The district

          court held that the FDIC properly relied on the books and records

          of an insolvent institution in making its determination  that the

          Commissioner  was not entitled to   deposit insurance.   The sole

          issue before us is  whether the district court erred  in granting

          summary judgment  against the Commissioner in  his action against

          the  FDIC in  its corporate  capacity.1   For the  reasons stated

          herein, we affirm.

                                      BACKGROUND
                                      BACKGROUND

                    The facts of  this case  are undisputed.   On July  20,

          1983,  in  compliance  with  the  Puerto  Rico  Insurance  Code's

          statutory  deposit requirement,  26 L.P.R.A.      801-809 (1976),

          Guaranty purchased the  six-month CD from the Girod Trust Company

                              
          ____________________

          1    In its  corporate capacity,  the  FDIC functions  as  a bank
          regulator  and  insurer of  bank deposits.    12 U.S.C.     1818,
          1821(a)  (1988 &  Supp. 1991).   The  Commissioner does  not seek
          review of that part of the district court decision that dismissed
          the complaint as against the FDIC as receiver of the former Girod
          Trust Company.

                                         -2-

          ("Girod" or the  "Bank") in the principal amount  of $50,000.  On

          the same day Guaranty  assigned and conveyed its interest  in the

          Certificate  to the Commissioner.   Girod was not  a party to the

          assignment.   Another  document was  executed on  the  same date,

          entitled "Requisition to the Bank."  This  document stated, inter
                                                                      _____

          alia, that Girod would  not release the funds represented  by the
          ____

          CD, "whether the principal value or  income thereof," without the

          Commissioner's authorization.   The Certificate was  itself given

          to, and remains with, the Commissioner.

                    Less than three months after purchasing the Certificate

          from Girod, Guaranty executed a  loan agreement, unrelated to the

          CD,  pursuant  to  which it  borrowed  $600,000  from  Girod.   A

          promissory note for  that amount, payable to Girod, evidenced the

          loan, and was due on April 26, 1984.  On January 17, 1984, the CD

          became due, and  was "rolled over" -- extended for  a term of six

          additional months --  at Guaranty's  request.   In the  meantime,

          Guaranty had fallen behind on payments due to the  Bank under the

          $600,000  loan agreement.   On  July 16,  1984,  the CD  came due

          again.   Two  days after  its maturity,  on July  18, $50,000  in

          proceeds  from  the Certificate  was  credited toward  Guaranty's

          outstanding indebtedness under the $600,000 loan agreement.

                    On August  16, 1984,  Girod was declared  insolvent and

          the  FDIC was  appointed  as receiver.    Four months  later,  on

          December  19,  1984,  Guaranty  also became  insolvent,  and  the

          Commissioner was appointed  its receiver  in turn.   As such,  on

          August 25, 1986, the Commissioner filed a proof of claim with the

                                         -3-

          FDIC, seeking payment  on the CD.  Having  received no payment on

          the claim, the Commissioner filed a complaint against the FDIC in

          the  Superior Court of  Puerto Rico on  May 22,  1991, seeking to

          recover  the proceeds of the CD.   The FDIC removed the action to

          federal  court pursuant to 12  U.S.C.   1819(b),  and the parties

          filed cross-motions  for summary judgment.  Without ruling on the

          motions, the district court requested submission of briefs on the

          application of  12 U.S.C.    1823(e).   The court then  held that

          that section  barred the Commissioner's reliance  upon either the

          Assignment or  the Requisition,  and ordered summary  judgment in

          favor of the FDIC.  On appeal in Villafa e-Neriz v. FDIC, 20 F.3d
                                           _______________    ____

          35 (1st Cir. 1994), this Court reversed the judgment of the lower

          court and  remanded the  case for further  proceedings consistent

          with  its opinion.    On February  7,  1995, the  district  court

          entered  summary  judgment  dismissing the  complaint.      It is

          undisputed  that the entire amount of the Certificate was set off

          against Guaranty's  indebtedness, that the CD  no longer appeared

          on the bank's books and records  at the time the bank failed, and

          that  the  Certificate  itself  remains  in  the   Commissioner's

          possession.  

                                      DISCUSSION
                                      DISCUSSION

                                A.  Standard of Review
                                A.  Standard of Review
                                    __________________

                    This case centers on whether the FDIC, in its corporate

          capacity,  was  correct  in  determining  there  was  no  insured

          deposit. As the essential facts are not in  dispute, and all that

          is  before us is  a question of  law, our review  of the district

                                         -4-

          court's decision is de novo.  See, e.g., FDIC v. Keating, 12 F.3d
                              _______   ___  ____  ____    _______

          314, 316 (1st Cir. 1993).  This Circuit has not yet decided which

          standard  a  district  court   should  use  when  reviewing  FDIC

          insurance claim determinations.  

                    There  is  a  dispute  among  the  circuits as  to  the

          underlying  standard that should apply  to the review  of an FDIC

          insurance claim  determination.   The majority of  circuits which

          have addressed the  issue apply the deferential standard  set out

          in Section  706 of  the Administrative  Procedure Act  ("APA"), 5

          U.S.C.    701-706 (1994).  See, e.g., Metro County Title, Inc. v.
                                     ___  ____  ________________________

          FDIC, 13 F.3d 883, 886 (5th Cir.  1994) (direct petition to court
          ____

          of appeals for review  of FDIC determination); Nimon v.  RTC, 975
                                                         _____     ___

          F.2d 240 (1992) (direct  petition to court of appeals  for review

          of  Resolution Trust  Corporation determination);  In  re Collins
                                                             ______________

          Sec. Corp., 998 F.2d 551, 553 (8th Cir. 1993) (review of district
          __________

          court decision); Fletcher Village Condominium Ass'n. v. FDIC, 864
                           ___________________________________    ____

          F.  Supp. 259,  263  (D. Mass.  1994).    The APA  mandates  that

          reviewing courts  set aside agency findings  that are "arbitrary,

          capricious,  an   abuse  of  discretion,  or   otherwise  not  in

          accordance  with  law."    5  U.S.C.    706(2)(A).    Under  this

          deferential standard a court would "review the evidence  anew and

          determine  whether the  administrative action  was arbitrary  and

          capricious."  First Nat'l Bank of Fayetteville v. Smith, 508 F.2d
                        ________________________________    _____

          1371,  1374 (8th Cir. 1974),  cert. denied, 421  U.S. 930 (1975);
                                        ____________

          see, e.g., Hymel v. FDIC, 925 F.2d 881, 883 (5th Cir. 1991).  
          ___  ____  _____    ____

                    However, a recent decision  by the D.C. Circuit creates

                                         -5-

          a second  option, holding that review of  FDIC determinations, to

          be  undertaken at  the district  court level,  should be  de novo
                                                                    __ ____

          rather than under the  deferential APA standard.  See  Callejo v.
                                                            ___  _______

          RTC, 17 F.3d 1497 (D.C. Cir. 1994).  The Callejo  court based its
          ___                                      _______

          rejection of  the APA on its reading of 12 U.S.C.   1821(f) (1988

          &  Supp. 1991),  which provides  for judicial review  of disputed

          deposit insurance  claims, and  its revision under  the Financial

          Institutions  Reform,  Recovery,  and Enforcement  Act  of  1989.

          Callejo, 17 F.3d at 1501 (concluding that   1821(f)(3) "supplants
          _______

          the APA and sets up a different relationship between the agencies

          and the courts"); see  Pub. L. No. 101-73, 103 Stat.  183 (1989);
                            ___

          cf. Pennsylvania v. FDIC, 881 F. Supp. 979, 983 (E.D. Penn. 1995)
          ___ ____________    ____

          (rejecting Callejo's  logic  but  nonetheless  applying  de  novo
                     _______                                       __  ____

          standard of review on other grounds).  This Circuit has expressly

          adopted  the aspect  of  the Callejo  decision  which holds  that
                                       _______

          initial jurisdiction to review claims for insurance benefits lies

          in  the district  court  rather than  in  the court  of  appeals.

          Massachusetts  v.  FDIC,  47  F.3d  456,  458  (1st  Cir.  1995).
          _____________      ____

          However,  the  decision in  that  case was  limited  to Callejo's
                                                                  _______

          jurisdictional holding.  Id. at 460.  Thus, Massachusetts v. FDIC
                                   ___                _____________    ____

          does not determine the district court's standard of review in the

          present case, and  our decision to  postpone the discussion  does

          not clash with our earlier decision. 

                    The  district  court  did  not explicitly  state  which

          standard  of  review it  was applying,  although  it did  make an

          isolated   reference,  midway   through   its  opinion,   to  the

                                         -6-

          "arbitrary, capricious and  contrary to law"  standard.  We  need

          not  determine  which standard  the  district  court should  have

          applied  at this time,  since we agree  with the  FDIC that under

          either  the APA "arbitrary and capricious" or the Callejo de novo
                                                            _______ __ ____

          standard, the  district  court's decision  is correct.   Thus  we

          postpone discussion regarding  the applicable standard  of review

          in light of Callejo for another day.
                      _______

                           B.  Was this an insured deposit?
                           B.  Was this an insured deposit?
                               ____________________________

                    At  the core  of the  parties' dispute  is whether  the

          Commissioner  was  entitled to  deposit  insurance.   That  issue

          depends on whether  there was an insured  deposit at the time  of

          Girod's failure, a question  which in turn hinges on  whether and

          when erroneous  bank records  are conclusive.   It is  undisputed

          that the Bank's account records did not disclose the existence of

          an  account on  the  date Girod  failed,  and that  the  original

          Certificate is in  the possession  of the  Commissioner, and  has

          been since July 1983.  The FDIC argues that under its regulations

          and the applicable case law, it is justified in relying solely on

          the failed Bank's account records, so that its refusal to provide

          insurance  was  proper.   The  Commissioner  counters that  under

          Puerto  Rico  law  the FDIC  should  have  known  the setoff  was

          improper,  because   the  Certificate  was  not   in  the  bank's

          possession.   Because  we  agree with  the  FDIC, we  affirm  the

          decision of the court below.

                    In  the Federal  Deposit  Insurance Act,  12 U.S.C.    

          1811-1831(d) (1982)  (as amended), Congress  defined "deposit" to

                                         -7-

          mean "the unpaid balance  of money or its equivalent  received or

          held by  a bank  or savings  association in  the usual course  of

          business and  for  which it  has given  or is  obligated to  give

          credit,  either conditionally or unconditionally,  . . . or which

          is evidenced by  its certificate of deposit . . . ."  12 U.S.C.  

          1813(l)(1) (Supp. 1995).  "Insured deposit" is defined in turn as

          "the net amount due to  any depositor for deposits in  an insured

          depository institution  as determined under sections  1817(i) and

          1821(a) of this  title."  12  U.S.C.   1813(m)(1)  (1988 &  Supp.

          1991). 

                    The  FDIC   contends  that  it  is   entitled  to  rely

          exclusively  on the account records of  the failed institution --

          and so it did  not have to look further afield  to track down the

          Certificate.  Our analysis  of the FDIC regulations, the  body of

          case law,  and the  policy concerns underlying  these regulations

          leads  us  to agree.   First,  the FDIC  regulations, promulgated

          under congressional authorization, Abdulla  Fouad & Sons v. FDIC,
                                             _____________________    ____

          898  F.2d 482, 484 (5th  Cir. 1990), themselves  provide that the

          amount of  an insured  deposit at  the closing  of a  failed bank

          shall be  "the balance of principal  and interest unconditionally

          credited to the deposit account as  of the date of default of the

          insured depository institution."  12 C.F.R.   330.3(i)(1) (1995).

          Indeed, the regulations specify that, while ownership under state

          law  is  one prerequisite  for  insurance  coverage, the  deposit

          account records are controlling:

                      Deposit  insurance  coverage  is  also  a
                      function of the  deposit account  records

                                         -8-

                      of the insured depository institution, of
                      recordkeeping requirements,  and of other
                      provisions  of this  part, which,  in the
                      interest  of  uniform national  rules for
                      deposit    insurance     coverage,    are
                      controlling  for purposes  of determining
                      deposit insurance coverage.

          12  C.F.R.     330.3(h)  (including  regulatory  exceptions   not

          relevant here).  Reviewing  courts have treated these regulations

          implementing  and interpreting  the statutory  provisions dealing

          with deposit  insurance  with  some  deference.2    See  FDIC  v.
                                                              ___  ____

          Philadelphia Gear Corp., 476 U.S.  426, 437-38 (1986); see, e.g.,
          _______________________                                ___  ____

          Raine v.  Reed, 14  F.3d 280, 283  (5th Cir. 1994);  Collins, 998
          _____     ____                                       _______

          F.2d at 555; cf. Chevron U.S.A. Inc. v. Natural Resources Defense
                       ___ ___________________    _________________________

          Council,  Inc.,  467  U.S.  837,  842-44  (establishing  doctrine
          ______________

          treating  agency's  view of  a  statute with  deference  when the

          statute is ambiguous), reh'g denied, 468 U.S. 1227 (1984).
                                 ____________

                    Second, a series of  policy considerations underlie the

          FDIC's practice of  relying on  the books and  records in  making

          deposit  insurance  determinations.   In purchase  and assumption

          transactions,3  the  FDIC  often  must  make  its  determinations
                              
          ____________________

          2    The  Commissioner asks  us  to  note  that "deposit  account
          records"  are defined  to  include certificates  of deposits  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(d) (1995).   This language
          proves unhelpful, however,  since it is undisputed that there was
          no Certificate among the  Bank's records at the time  of failure.
          Had the  Certificate  remained in  the records,  this case  would
          likely not have arisen.

          3   A  purchase and  assumption transaction  occurs when,  in its
          capacity  as  receiver, the  FDIC sells  a failed  bank's healthy
          assets to a purchasing  bank in exchange for that  bank's promise
          to pay the  depositors of  the failed bank.   FDIC-receiver  next
          sells the  'bad'  assets  to itself  as  FDIC-corporate.    FDIC-

                                         -9-

          overnight.  See Raine, 14 F.3d at 283 ("We will not undermine the
                      ___ _____

          speed and efficiency of bank  takeovers by imposing a requirement

          upon the FDIC  to locate  and evaluate every  possible avenue  of

          disputed  liability  in implementing  the  takeover  of a  failed

          bank."); McCloud v. FDIC, 853 F.  Supp. 556, 559 (D. Mass. 1994).
                   _______    ____

          Making  quick determinations both facilitates the public's access

          to its savings, Abdulla Fouad, 898 F.2d at 485, and maintains the
                          _____________

          going concern  value of the failed  bank, Raine, 14 F.3d  at 283.
                                                    _____

          Finally,  the  regulations  also avoid  fraudulent  increases  in

          insurance coverage  by preventing the creation  of separate trust

          accounts after default has occurred.  See Baskes v. FSLIC, 649 F.
                                                ___ ______    _____

          Supp. 1358, 1360 (N.D. Ill. 1986).

                    Third,  there is "a well-grounded history of permitting

          the FDIC  to  rely exclusively  on the  books and  records of  an

          insolvent institution  in effectuating the takeover  of banks and

          in  making the  many deposit  insurance determinations  which are

          necessary to that task."  Raine, 14 F.3d at 283; see McCloud, 853
                                    _____                  ___ _______

          F. Supp. at 559  (describing the "seemingly solid phalanx  of law

          establishing the  conclusiveness of bank  account records");  see
                                                                        ___

          also  Abdulla Fouad,  898 F.2d  at 484  (providing statutory  and
          ____  _____________

          regulatory basis  for FDIC reliance on  deposit account records).

                              
          ____________________

          receiver  uses the money received  to pay the  purchasing bank to
          make  up  the difference  between  what the  purchasing  bank was
          willing to pay for  the good assets and what  it must pay out  to
          the  failed  bank's depositors.    FDIC-corporate  then tries  to
          collect  on  the  bad  assets.    This  purchase  and  assumption
          generally  needs  to be  executed  with  speed, often  overnight.
          Timberland  Design, Inc. v. First  Serv. Bank For  Sav., 932 F.2d
          ________________________    ___________________________
          46, 48 (1st Cir. 1991).

                                         -10-

          This  reliance on  the  books  and  records  draws  on  the  FDIC

          regulations:    the  "FDIC's  longstanding  practice  of  looking

          primarily  at  the  failed  bank's  deposit  account  records  in

          determining   insurance   claims   is   clearly   a   permissible

          interpretation of  [its] statutory mandates."   Collins, 998 F.3d
                                                          _______

          at 554.  Indeed, the case law the FDIC cites states that a bank's

          closing  is  "the seminal  point"  of  the FDIC's  determination.

          "That event not  only trigger[s] the liquidation process,  but it

          also  cast[s] in  stone the  relationship of  [plaintiff] to  the

          bank."  FDIC  v. McKnight, 769 F.2d 658, 661 (1985), cert. denied
                  ____     ________                            ____________

          sub  nom.,  All Souls  Episcopal Church  v.  FDIC, 475  U.S. 1010
          _________   ___________________________      ____

          (1986).

                    In fact, the case law supports the FDIC's dependence on

          the  books and records  of the Bank  at the time  of failure even

          though  the   balance  was  a  result   of  alleged  unauthorized

          activity.4  See Abdulla  Fouad, 898 F.2d at 484-85  (finding that
                      ___ ______________

          plaintiff's  position that  the  FDIC should  have searched  bank

          credit  files  and other  records  before  denying a  claim  goes

          against  statutory and  regulatory authority);  Fletcher Village,
                                                          ________________
                              
          ____________________

          4  This circuit has not previously reached the issue of whether a
          bank's correctly  recorded but unauthorized activity precludes an
          insurance claim.  See  FDIC v. Fedders Air Conditioning,  35 F.3d
                            ___  ____    ________________________
          18, 23 (1st  Cir. 1994).   Indeed,  in the  present case's  first
          appearance  before  this  court,  we noted  we  had  not  decided
          "whether or  to what  extent we would  be willing  to follow  the
          Eighth Circuit's holding in In re Collins."  Villafa e-Neriz,  20
                                      _____________    _______________
          F.3d  at  40 n.6.   In  affirming  the district  court's decision
          today, we  adopt much of  the logic  of the Collins  decision, as
                                                      _______
          well as the  decisions of  the district  court for  Massachusetts
          which have decided similar  cases.  See Fletcher Village,  864 F.
                                              ___ ________________
          Supp. at 265 (adopting the reasoning of Collins); McCloud, 853 F.
                                                  _______   _______
          Supp. at 559.

                                         -11-

          864 F. Supp. at  265 ("To hold the FDIC liable for the errors and

          omissions  inherent in  almost  any  routine banking  transaction

          would divert the  FDIC from  its core mission  of protecting  the

          banking  system  from  an  ultimate  catastrophe.").    In  their

          analysis, "[t]hese  cases reflect the severe  tension between two

          values:   the  legitimate expectations  of the depositor  and the

          regulator's desire to rely upon existing  records to expedite the

          handling of bank emergencies."  Fedders Air Conditioning, 35 F.3d
                                          ________________________

          at 23.

                    The Eighth Circuit's analysis in  the factually similar

          In re Collins  proves illustrative.  In  that case, as here,  the
          _____________

          purchaser  of a  certificate  assigned the  proceeds  to a  third

          party,  Collins.    The  proceeds,  however,  were  paid  to  the

          purchaser's account,  and  the CD  account was  reflected on  the

          institution's account  records as closed.   Collins, 998  F.2d at
                                                      _______

          552-53.  The trustee  for the bankrupt Collins sought  to recover

          from  the institution for paying  out the CD  account despite the

          assignment,   alleging  negligence   and   breach  of   contract.

          Following the institution's insolvency, the FDIC in its corporate

          capacity   denied  deposit  insurance,  and  the  trustee  sought

          judicial review of its denial.  Id. at 553.  The court of appeals
                                          ___

          held that the  FDIC properly relied on  the books and records  of

          the failed institution to deny deposit insurance, noting that the

          institution's "mistaken payment  may not have affected  Collins's

          rights  against  the  bank, but  it  did  extinguish the  insured

          amount."   Id.  at 554.   In short,  it reasoned  that "[d]eposit
                     ___

                                         -12-

          insurance  protects  depositors  from  loss  due  to  the  bank's

          insolvency, not  loss from  the bank's  pre-insolvency mistakes."

          Id. at 555.  We find the Eighth Circuit's reasoning convincing in
          ___

          the present case as well.

                    The  Commissioner  seeks  to  differentiate  Collins on
                                                                 _______

          several bases.  First, he argues that the mistake  in Collins was
                                                                _______

          a simple bank error,  id. at 552-53, while the  "cancellation" in
                                ___

          the current case is not a  simple mistake, but rather was illegal

          on its face.   We do not find the distinction  relevant.  In both

          cases,  the  account was  cancelled  without regard  to  the CD's

          assignment,  and  the  bank's   records  had  not  reflected  the

          assignment.  Second, he finds it significant that the decision in

          Collins  noted  not only  that  the account  in  controversy been
          _______

          closed  at least  a  full  year  before  the  bank  was  declared

          insolvent,  but also that the insolvent bank had not paid deposit

          insurance premiums  for the account.   See id. at 553-54.   Here,
                                                 ___ ___

          the Commissioner contests, Girod paid  deposit insurance premiums

          on the CD account, which  was cancelled less than a  month before

          the  bank was  taken  over  and a  few  days  after the  Treasury

          Department of Puerto Rico conducted the investigation that led to

          the  bank's  closing.    Again,  we  are  not  convinced  of  the

          distinction.  In  Collins, the court's determination was based on
                            _______

          the fact that the  records of a failed bank indicated the amounts

          that  were insured, and the accounts for which the FDIC collected

          deposit  insurance premiums.  The length of time that the account

          was  closed, or the insurance  premiums unpaid, was  not the key:

                                         -13-

          the crucial factor was the reasonableness of the FDIC reliance on

          the  records.  See id. at 554.  Collins noted that the CD account
                         ___ ___          _______

          was  not an  insured deposit  for which  premiums were  paid, and

          found that Collins'  trustee had "confus[ed] the right to recover

          from  the bank  with  the  right  to  withdraw  from  an  insured

          account."  Id.  
                     ___

                    Raine  v. Reed  offers another  example of  an analysis
                    _____     ____

          upholding  the FDIC's exclusive reliance on the books and records

          of  a failed  institution.   Raine was  a victim  of unauthorized

          withdrawals from automatic teller machines, who notified her bank

          of the  withdrawals and  sought to  have her  account re-credited

          pursuant to the Electronic Funds Transfer Act ("EFTA"), 15 U.S.C.

             1693-1693r.   Raine, 14  F.3d at 281-82.   At the time  of its
                           _____

          failure, the  bank had not provisionally  re-credited the account

          pending  final   resolution  of  her  request,   as  required  by

          regulations  implementing  the EFTA.    Raine  contended she  was

          entitled  to deposit insurance on  the basis that  she should not

          suffer because of the bank's mistakes.  Id. at 282.  However, the
                                                  ___

          Fifth Circuit found that

                      [t]he  disputed  amount  was  simply  not
                      credited   to   her   account   at   all,
                      conditionally  or  otherwise.   Thus, the
                      account  cannot  be  covered  by  deposit
                      insurance  because  no  credit   for  the
                      amounts  withdrawn  was  entered  on  the
                      bank's books at the time of failure.

          Id.  at 283.  The court relied  on the "well-grounded history" of
          ___

          allowing   the  FDIC   to  rely   exclusively  on   an  insolvent

          institution's books and  records, even where the bank  itself has

                                         -14-

          committed a  mistake, as well as the  policy rationales discussed

          above, in upholding the FDIC's use of the books and records.  Id.
                                                                        ___

          According to the court, "[t]he regulations are clear  and simple,

          either the amount is credited to the account, in which case it is

          covered by deposit insurance, or the  amount is not on the books,

          in which case  it becomes a general liability of  the bank."  Id.
                                                                        ___

          at 284.

                    The Commissioner offers no authority  contradicting our

          analysis of the FDIC regulations, policy considerations, and case

          law  supporting the use of  the failed bank's  records.  Instead,

          the  Commissioner  counters  with  two arguments.      First,  he

          contends that even if the FDIC relied on Girod's existing records

          at the time of its failure in 1984, it should have concluded that

          the   Certificate  had   not  been   properly  cancelled.     The

          Commissioner  relies on 7 L.P.R.A.    3 (1981),  which states, in

          pertinent part, that 

                      [t]he  term  "deposit certificate"  shall
                      mean any deposit which has been evidenced
                      by   a   receipt  or   written  agreement
                      containing  the  term   for  which   such
                      deposit  has been  made  and  which  also
                      requires presentation at the bank for its
                      _________________________________________
                      collection.
                      __________

          (emphasis added).   He concludes  from this  language that  since

          Puerto  Rico law mandates that  the original of  a certificate of

          deposit be presented to the bank for collection, an FDIC official

          reviewing Girod's records  regarding the CD's "cancellation"  had

          to be alerted that the Certificate was still  valid by the simple

          fact that the original was not contained in the customer profile.

                                         -15-

          By failing to do so, the Commissioner contends, the FDIC did  not

          give  the  proper  weight  to these  Puerto  Rican  recordkeeping

          requirements.

                    We  do not find this argument convincing.  On its face,

          the  statute  sets  out  the requirements  for  presentation  for

          collection, which  is not at  issue here.  We  are concerned with

          what records  should remain in the  bank after a  setoff, and the

          language is silent on this point.  The sole case the Commissioner

          cites to support its argument that the statute should be  read to

          require  that the original of a certificate must be presented for

          setoff, Walla Corp.  v. Banco Commercial de  Mayaguez, 114 D.P.R.
                  ___________     _____________________________

          216  (1983)   (holding  that  where   bank  set  off   loan  with

          certificates  effectively  assigned to  third  party, bank  could

          compensate the CDs with the  loans debtor had with it), does  not

          mention  the statute.  We could find no case law on point.  Given

          the plain meaning of the statute,  and the absence of evidence to

          support  the Commissioner's reading of the statute, we reject his

          position. 

                    The  Commissioner's  second   argument  relies  on   an

          exception to  the general rule that the  records of a failed Bank

          are  conclusive.  That exception states  that "records that would

          otherwise be conclusive evidence  may be attacked as fraudulent."

          Collins, 998  F.2d at  555; see, e.g.,  Jones v.  FDIC, 748  F.2d
          _______                     ___  ____   _____     ____

          1400, 1405 (10th  Cir. 1984); McCloud, 853 F. Supp.  at 559.  The
                                        _______

          Commissioner argues to  this court  that there was  fraud in  the

          transaction  assigning  the  Certificate,  and  therefore  he  is

                                         -16-

          entitled to attack the conclusiveness of Girod's records.

                    However,  we  refuse  to  consider  the  Commissioner's

          argument, since he  raises it for the first time  on appeal.5  It

          is well established that this court will not consider an argument

          presented for  the first time on  appeal.  See Clauson  v. Smith,
                                                     ___ _______     _____

          823  F.2d 660,  666 (1st  Cir. 1987)  (collecting cases).   While

          exceptions to this  rule exist, they  apply only "'in  horrendous

          cases  where  a  gross  miscarriage  of  justice  would  occur,'"

          Johnston v. Holiday Inns, Inc., 595 F.2d 890, 894 (1st Cir. 1979)
          ________    __________________

          (quoting  Newark Morning  Ledger Co. v.  United States,  539 F.2d
                    __________________________     _____________

          929, 932 (3d Cir. 1976)), and this is not  such a case.  That the

          Commissioner's argument involves no new facts, just a new theory,

          is irrelevant.   See Ondine  Shipping Corp. v.  Cataldo, 24  F.3d
                           ___ ______________________     _______

          353, 355 (1st Cir. 1994) ("This assertion is neither original nor

          persuasive.").

                    Therefore,  since   we  find  that  under   either  the
                              
          ____________________

          5   We note in passing that  the Commissioner argues on the basis
          of fraud in  the transaction underlying the  records, since there
          is  no  question  that  the  records  themselves  were  accurate.
          However,  the  cases the  Commissioner seeks  to  rely on  in his
          argument -- McCloud, Abdulla Fouad, and Collins -- all discuss an
                      _______  _____________      _______
          exemption based on fraud in a bank's recordkeeping.  See Collins,
                                                               ___ _______
          998 F.2d at 556  (noting that there was "no  allegation of fraud"
          where the bank's records "accurately reflected payout of $100,000
          to  the  wrong  party.");  Abdulla  Fouad,  898  F.2d  at  485-86
                                     ______________
          (refusing to extend  exception to include  proof directed to  the
          deposit  account  recording);  McCloud,   853  F.  Supp.  at  560
                                         _______
          (concluding  that, where there  was evidence that  the records of
          deposits were altered during the course of fraudulent conduct  by
          the bank president, "it was arbitrary, capricious and contrary to
          law for the agency to consider the customer profile as of the day
          of  the bank's default as conclusive"  (footnote omitted)).  Thus
          we question whether the Commissioner would have met with success,
          even if he had both  raised this argument in the court  below and
          demonstrated that there was fraud in the transaction.

                                         -17-

          arbitrary  and capricious  standard or a  more demanding  de novo
                                                                    __ ____

          review the FDIC was correct in relying solely on Girod's records,

          and  reject the  Commissioner's  arguments based  on Puerto  Rico

          banking  law and fraud, we affirm the district court's holding on

          these issues.

                     C.  Application of the McCarran-Ferguson Act
                     C.  Application of the McCarran-Ferguson Act
                         ________________________________________

                    The Commissioner  raises one final argument against the

          FDIC's  insurance determinations,  based on  Section 2(b)  of the

          McCarran-Ferguson  Act.  59 Stat.  33, 34 (1945),  as amended, 15

          U.S.C.   1012(b).  Section 2(b) states, in pertinent part:

                      No Act of Congress shall be  construed to
                      invalidate, impair, or supersede  any law
                      enacted by  any State for  the purpose of
                      regulating the business of  insurance, or
                      which  imposes  a fee  or  tax upon  such
                      business,  unless  such Act  specifically
                      relates  to  the  business  of  insurance
                      . . . .

          15  U.S.C.    1012(b) (1994).   This  statute creates "a  form of

          inverse  preemption,  letting  state  law  prevail  over  general

          federal rules--those  that do  not 'specifically relate[]  to the

          business of insurance.'"  NAACP v. American Family Mut. Ins. Co.,
                                    _____    _____________________________

          978  F.2d 287, 293  (7th Cir. 1992), cert.  denied, ___ U.S. ___,
                                               _____________

          113  S. Ct. 2335, 124 L.Ed.2d 247 (1993); see United States Dep't
                                                    ___ ___________________

          of the  Treasury v. Fabe,  ___ U.S.  ___, ___, 113  S. Ct.  2202,
          ________________    ____

          2211, 124  L.Ed.2d 449 (1993)  (noting that the  Act "transformed

          the  legal   landscape  by   overturning  the  normal   rules  of

          preemption.").   As the Supreme Court  has explained, "'Congress'

          purpose  was broadly to give  support to the  existing and future

          state  systems   for  regulating  and  taxing   the  business  of

                                         -18-

          insurance.'"  Fabe, 113  S. Ct. at 2207 (quoting  Prudential Ins.
                        ____                                _______________

          Co.  v. Benjamin, 328 U.S. 408, 429  (1946)).  Indeed, the quoted
          ___     ________

          language  of Section 2(b) "impos[es] what is, in effect, a clear-

          statement rule, a rule  that state laws enacted 'for  the purpose

          of  regulating  the  business  of  insurance'  do  not  yield  to

          conflicting   federal   statutes   unless   a   federal   statute

          specifically requires otherwise."  Id. at 2211.
                                             ___

                    The Commissioner seizes on Section 2(b) to contend that

          the district  court's decision  "renders meaningless"  the Puerto

          Rico Insurance Code provisions requiring that insurance companies

          make  statutory deposits.  See  26 L.P.R.A.     801-809.  Because
                                     ___

          Guaranty assigned the CD  to the Commissioner in order  to comply

          with this  statute, the Commissioner concludes  that the district

          court's  decision  upholding  the   FDIC's  refusal  of   deposit

          insurance  impairs the  Commissioner's  ability  to regulate  the

          business  of insurance  in  Puerto Rico,  and therefore  violates

          Section  2(b).     The  decision,   the  Commissioner   contends,

          particularly impairs "obtaining  eligible deposits from insurance

          companies to comply with the statutory deposit requirement of the

          Insurance Code, whose ultimate aim is to protect policyholders in

          case of the insurer's insolvency."  (Appellant's Brief, at 20).

                    The Supreme Court  has set out the factors required for

          a  federal  statute to  fall  within  the McCarran-Ferguson  Act.

          First,  the  federal   statute  must   "invalidate,  impair,   or

          supersede" the state act.   Second, the federal statute  must not

          "specifically relat[e]  to the business of  insurance."  Finally,

                                         -19-

          the  state law  must  have  been  enacted  "for  the  purpose  of

          regulating the business of insurance."  Fabe, 113 S. Ct. at 2208.
                                                  ____

          We need go  no further than the first factor  in our analysis, as

          the Commissioner's  argument that  the application of  the Puerto

          Rico Insurance Code is impaired fails.

                    The  Supreme  Court  faced  the  question  of  when  an

          "impairment" occurs in SEC  v. National Sec., Inc., 393  U.S. 453
                                 ___     ___________________

          (1969).  In that case, the SEC sought to unwind the merger of two

          insurance  companies which  had  been approved  by  the state  of

          Arizona, on the basis that the merger was obtained through use of

          fraudulent misrepresentations.    Arizona argued  that the  SEC's

          action  would violate  the  McCarran-Ferguson Act.   The  Supreme

          Court,  finding  that the  essential  question  was "whether  the

          McCarran-Ferguson  Act  bars a  federal  remedy  which affects  a

          matter  subject  to  state  insurance regulation,"  id.  at  462,
                                                              ___

          disagreed.  

                      The gravamen  of  the complaint  was  the
                      misrepresentation,  not the merger. . . .
                      Nevertheless, [the state] contend[s] that
                      any  attempt to  interfere with  a merger
                      approved  by  state  insurance  officials
                      would "invalidate,  impair, or supersede"
                      the  state  insurance laws  .  .  . .  We
                      cannot    accept   this    overly   broad
                      restriction on federal power.
                         It  is clear that  any "impairment" in
                      this case is a most indirect one.

          Id. at  462-63.  The courts have relied on this logic to conclude
          ___

          that   "application  of a  federal law  [will] be  precluded only

          where  the federal  law expressly  prohibit[s] acts  permitted by

          state law, or vice  versa."  Merchants Home Delivery  Serv., Inc.
                                       ____________________________________

                                         -20-

          v. Frank  B. Hall  &  Co., 50  F.3d 1486,  1492  (9th Cir.  1995)
             ______________________

          (holding that application of a  federal law which prohibited acts

          also  prohibited  by  state  insurance law  did  not  invalidate,

          impair,   or  supersede  state   law,  despite   their  differing

          remedies),  cert. denied  sub nom.,  Prometheus Funding  Corp. v.
                      ______________________   _________________________

          Merchants Home Delivery  Serv., Inc.,  ___ U.S. ___,  116 S.  Ct.
          ____________________________________

          418, ___ L.Ed.2d ___  (1995); see American Family Mut.  Ins. Co.,
                                        ___ ______________________________

          978  F.2d  at 296-97  (drawing  on  analogies  to the  principles

          governing federal preemption of state law).  

                    Application  of this  "direct  conflict"  test  quickly

          defeats the  Commissioner's argument.   In short, nothing  in the

          district  court opinion -- or the FDIC regulations -- impairs the

          Commissioner's authority  or  ability  to  obtain  deposits  from

          insurance  companies  to  comply   with  the  statutory   deposit

          requirement.   The  opinion and  regulations merely set  out what

          records the FDIC may rely on  in making insurance determinations.

          The  Commissioner's loss is the product of events, not a conflict

          between federal and Commonwealth  statutes.  In the absence  of a

          direct  prohibition, we  refuse to  hold that  there has  been an

          impairment merely because  in this circumstance a  CD assigned to

          the  Commissioner was  set  off against  the insurance  company's

          indebtedness.  Cf. Merchants Home Delivery, 50 F.3d at 1492 ("The
                         ___ _______________________

          language of   2(b) is inconsistent with a congressional intent to

          allow states to preempt the field of insurance regulation.").  

                                      CONCLUSION
                                      CONCLUSION

                    For the reasons stated above, we affirm.
                                                     affirm.
                                                     ______

                                         -21-