Court Opinion

ID: 5611
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:07:43+00
Date Added: 2024-06-11T08:27:12.143307
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                         FOR THE FIFTH CIRCUIT

                         _____________________

                              No. 91-3930
                         _____________________

LANDMARK LAND COMPANY, INC., ET AL.,

                                                 Plaintiffs-Appellees,

          versus

OFFICE OF THRIFT SUPERVISION and TIMOTHY RYAN, Director,

                                                 Defendants-Appellants.

     _______________________________________________________

           Appeal from the United States District Court
               for the Eastern District of Louisiana
     _______________________________________________________

                           (April 29, 1993)

Before WILLIAMS, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

     The Office of Thrift Supervision (OTS) appeals from the

district court's granting of injunctive relief to both Landmark

Land Company, Inc. (Landmark) and some of its directors, the

individual plaintiffs.    The OTS had issued a temporary cease-and-

desist order against Landmark and the other plaintiffs.       The order

prohibited them from dissipating the assets of the subsidiaries of

a savings association and also froze their personal assets pending

the resolution of the underlying administrative cease-and-desist

                                   1
proceeding.         The    district    court's     injunction       suspended        the

temporary order. On appeal, the OTS argues that the district court

erred substantively and procedurally in granting the preliminary

injunction.    We find that the district court erred procedurally,

and we vacate and remand the injunction for reconsideration by the

district court.

                      I.    FACTS AND PRIOR PROCEEDINGS

     Plaintiff-Appellees Gerald G. Barton, Bernard G. Ille, William

W. Vaughan, III, and Joe W. Walser, Jr. were the directors of

plaintiff-appellee         Landmark     Land     Company,    Inc.,       a   Delaware

corporation and holding company. Since the mid-1970s, Landmark has

developed and operated several golf courses and resort communities.

In 1982 Landmark acquired a financially troubled thrift in New

Orleans, Louisiana and renamed it Landmark Savings Bank, S.S.B. (a

savings bank chartered by the State of Louisiana).                            In 1986

Landmark    Savings       Bank    acquired     another   thrift,      to     which   it

transferred its assets in 1989. The resulting thrift was named Oak

Tree Savings Bank, S.S.B. (Old Oak Tree).

     Old Oak Tree owned Clock Tower Place Investments, Ltd. (Clock

Tower), a     first-tier         subsidiary.     Clock     Tower    in     turn   owned

numerous second-tier subsidiaries, including Landmark Land Company

of California, Inc.; Landmark Land Company of Carolina, Inc.;

Landmark Land Company of Oklahoma, Inc.; Landmark Land Company of

Florida,    Inc.;    and    Landmark    Land     Company    of     Louisiana,     Inc.

                                          2
(collectively, the subsidiaries).                Barton, Ille, Vaughan, and

Walser served as directors of both Landmark and Old Oak Tree.

Barton,    Vaughan,   and   Walser      also    served     as   directors   and/or

officers of various ones of the subsidiaries.

     In August 1989, Congress passed the Financial Institutions

Reform, Recovery, and Enforcement Act of 1989 (FIRREA).1                          Of

critical    importance      was   the        change   in    the    capitalization

requirements by FIRREA so that Landmark could no longer use its

real estate holdings to capitalize Old Oak Tree. Although Landmark

sought to sell the golf courses and resort properties held by its

subsidiaries,    it   was    unsuccessful.            Between     April   1990   and

September 1991, Landmark entered into two contracts to sell the

subsidiaries' real estate holdings.             Both contracts, however, fell

through.    The OTS refused to approve the first, and after the OTS

stepped in to renegotiate the second, the buyer withdrew the offer.

     Meanwhile, Old Oak Tree was incurring significant losses in

1989, 1990, and 1991.         After failing to meet minimum capital

requirements in July 1990, Old Oak Tree submitted a capital plan

that OTS rejected.       Then, in January 1991, Old Oak Tree and OTS

executed a Consent Agreement that imposed certain restrictions and

requirements on the management of Old Oak Tree.                     Old Oak Tree

    1
       FIRREA abolished both the Federal Home Loan Bank Board and
the Federal Savings and Loan Insurance Corporation, and it created
the Office of Thrift Supervision (OTS) to oversee and regulate
savings associations.

                                         3
agreed among other things to obtain prior written approval from OTS

before entering into “any material transaction.”

       After the second sales contract fell through, the boards of

directors of the six subsidiaries met in October 1991 to consider

their options. Barton, Walser, and Vaughan were present at several

of these meetings, but chose to abstain from voting.                         The boards

voted to file Chapter 11 bankruptcy, and such a filing occurred on

October 11, 1991, in the United States Bankruptcy Court for the

District of South Carolina. Each subsidiary then obtained from the

South Carolina bankruptcy court a temporary restraining order,

which    prevented    Old        Oak    Tree    and    the    OTS     from   exercising

shareholder rights to change management to enable withdrawal of the

bankruptcy petitions.

       The   OTS   responded       on   October       13,   1991,    by    invoking   its

statutory powers pursuant to 12 U.S.C. § 1818 to commence a cease-

and-desist proceeding.           The OTS has the authority to pursue cease-

and-desist proceedings against an institution and any institution-

affiliated parties (such as directors and officers) when it decides

that they are engaging in unsound business practices, violating the

law,    or   breaching      an     agreement      with      the     OTS.     12   U.S.C.

§ 1818(b)(1).       Such a proceeding was commenced in this case by

filing   a   Notice   of     Charges      setting       out   the     allegations     and

scheduling an administrative hearing.                  The OTS then appointed the

Resolution Trust Corporation (RTC) as receiver for Old Oak Tree and

                                            4
chartered Oak Tree Federal Savings Bank of New Orleans, Louisiana

(New Oak Tree).

     The Notice of Charges filed against the plaintiffs alleged

that the individual plaintiffs had breached their fiduciary duties

by acting to file the bankruptcy petitions and by failing to inform

the OTS either of the impending bankruptcy or of their conflict of

interest.   The   Notice    of   Charges    further    asserted     that   the

plaintiffs had violated the Consent Agreement, and the OTS imposed

civil monetary penalties:        one million dollars on each of the

individual directors, and on Landmark $500,000 plus an additional

$500,000 for   each   day   beyond   October   13     that   the   individual

plaintiffs failed to withdraw the bankruptcy petitions.

     The OTS undertook to act under its authority to issue broad

temporary cease-and-desist orders when it determines that the

unsound practice or violation is “likely to cause insolvency or

significant dissipation of assets.”        12 U.S.C. § 1818(c)(1).         Such

a temporary cease-and-desist order may be entered without a hearing

and may require affirmative action.        Parker v. Ryan, 959 F.2d 579,

581-82 (5th Cir. 1992).     A temporary order becomes effective upon

service, but the institution receiving the order has ten days

within which it can seek judicial review.        12 U.S.C. § 1818(c)(1)

and (2).

                                     5
     The OTS issued the Temporary Order To Cease and Desist (the

Temporary    C&D),    and     it   drastically      limited    the    plaintiffs'

authority and froze the personal assets both of the plaintiffs and

of their family members.             The plaintiffs timely applied to the

district court in New Orleans to set aside, limit, or suspend the

Temporary C&D pursuant to 12 U.S.C. § 1818(c)(2).                    Although the

district    court    denied    the    plaintiffs'    initial    request    for   a

temporary restraining order, it scheduled a preliminary injunction

hearing for November 1, 1991.            Before the hearing, however, the

South Carolina bankruptcy court issued findings and enjoined the

RTC from exercising any shareholder rights over the subsidiaries

and their management.         On November 1, the Louisiana district court

took notice of the bankruptcy court's findings, suspended the

Temporary    C&D,    and    sua      sponte   transferred      the    plaintiffs'

application to the South Carolina bankruptcy court.

     The    RTC   appealed     the    South   Carolina    bankruptcy      court's

injunction, and the OTS appealed the Louisiana district court's

transfer.   On November 26, 1991, a panel of this court held that it

was error to transfer the application to South Carolina and denied

the OTS's motion to stay the preliminary injunction pending the

appeal of that order.         Landmark Land Co., Inc. v. Office of Thrift

Supervision, 948 F.2d 910 (5th Cir. 1991).                The South Carolina

bankruptcy court's injunction was subsequently reversed by the U.S.

Court of Appeals for the Fourth Circuit.                  Thus, the RTC was

authorized to assert its ownership rights over the subsidiaries.

                                         6
In re Landmark Land Co. of Okla, Inc., 973 F.2d 283 (4th Cir.

1992).    At the end of 1992, the RTC was continuing to operate the

subsidiaries under the jurisdiction of the bankruptcy court.

       Over a year has passed since the OTS filed the Notice of

Charges and commenced the underlying administrative action, and

that action has not yet concluded.         The Louisiana district court's

injunction suspending the Temporary C&D, however, remains in effect

and is the subject of this timely appeal by the OTS.

                            II.   DISCUSSION

       To obtain a preliminary injunction, the plaintiffs had to show

(1) that there was a substantial likelihood they would succeed on

the merits, (2) that they faced a substantial threat of irreparable

harm   without   the   injunction,   (3)    that   the   threatened   injury

exceeded any harm that would flow from the injunction, and (4) that

the injunction would not undermine the public interest.               United

Offshore Co. v. Southern Deepwater Pipeline Co., 899 F.2d 405, 407-

08 (5th 1990).    Although the district court must apply a stringent

standard, our review is limited generally to considering whether

the district court abused its discretion.            Doran v. Salem Inn,

Inc., 422 U.S. 922, 931-32, 95 S. Ct. 2561, 2568, 45 L. Ed. 2d 648

(1975).    We review findings of fact for clear error.         FED. R. CIV.

P. 52(a).    We review de novo the legal questions decided by the

district court.    United Offshore Co., 899 F.2d at 407.

                                     7
     The    parties   have   argued    extensively          the    merits    of    the

preliminary injunction.        Our review, however, does not reach the

merits   because   the   district     court    did    not    reach     them.       The

plaintiffs had filed their complaint and an application for a

temporary    restraining     order,   which    they     supplemented           with   a

memorandum of law for the preliminary injunction hearing.                      The OTS

had filed its response to the application.                   At the preliminary

injunction    hearing,   the     district     court    had    before      it     those

documents and the findings of the bankruptcy court.                    The district

court, however, did not consider the four inquiries required for a

preliminary injunction.      Instead, the district court was concerned

about the concurrent bankruptcy proceeding in South Carolina, and

it decided to transfer the action to South Carolina “in the

interest of judicial economy.”          By its injunction, the district

court suspended the operation of the Temporary C&D until the

bankruptcy court in South Carolina could take up the matter.

Although we vacated the transfer as improper, the Temporary C&D

remains suspended pending our decision on this appeal.

     The district court did not consider the contentions of the

parties, nor did it take further evidence to determine whether a

preliminary    injunction    was    warranted.        We     conclude       that   the

district court abused its discretion by failing to apply the four

criteria     for   preliminary     injunctions        when        it   granted     the

suspension.    The plaintiffs ask us to affirm the injunction, and

the OTS argues that we should reverse and render.                  Neither action,

                                       8
however, is appropriate.       We vacate the injunction and remand the

case to the district court.          The district court must determine

whether the plaintiffs can make a proper showing and are entitled

to suspension of the Temporary C&D.

     In addition to failing to apply the proper criteria, the

district court did not comply with Federal Rules of Civil Procedure

52(a) and 65(d). Rule 52(a) mandates that the district court issue

findings   of   fact    and   conclusions       of   law   when   it   grants    an

injunction. Rule 65(d) requires the district court to set forth in

specific terms    its    reasons    for   issuing      the   injunction.        The

district court stated generally its reasons for suspending the

Temporary C&D and took notice of the findings of the bankruptcy

court, but failed to issue specific findings.

     The   plaintiffs     argue    that   the    South     Carolina    bankruptcy

court's findings justify the suspension of the Temporary C&D and

have preclusive effect in the instant case.                They assert that the

OTS is barred from relitigating the findings because they are based

upon issues that (1) are identical to those involved in the prior

litigation, (2) have been actually litigated, and (3) have been “a

critical and necessary part of the judgment in the earlier action.”

Terrell v. DeConna, 877 F.2d 1267, 1270 (5th Cir. 1989).

     This argument fails for two reasons.             First, issue preclusion

does not apply.    The question before the court in South Carolina

                                      9
was whether it should enjoin the RTC from exercising shareholder

rights over the subsidiaries and from denying Landmark and its

officers access to books and records.                The Temporary C&D was not

before the bankruptcy court and has little to do with the RTC's

rights as receiver.         Additionally, of course, the Fourth Circuit

reversed the bankruptcy court's injunction.                  As the United States

Supreme Court has noted, “[E]ven if the second suit is for a

different cause of action, the right, question, or fact once so

determined must, as between the same parties or their privies, be

taken as conclusively established, so long as the judgment in the

first suit remains unmodified.”            Southern Pac. R.R. v. United

States, 168 U.S. 1, 48-49, 18 S. Ct. 18, 27, 42 L. Ed. 355 (1897)

(see 18 WRIGHT    ET AL.,   FEDERAL PRACTICE   AND   PROCEDURE § 4416 (1981)).

Although the first suit was as yet unmodified when the district

court suspended the Temporary C&D, it has since been reversed, and

the original findings clearly can have no preclusive effect.2

     The    second   reason     the   plaintiffs'        contention       fails    is

exemplified by Seattle-First National Bank v. Manges, 900 F.2d 795,

799-800 (5th Cir. 1990).         In that case, the district court had

adopted    the   magistrate's    findings      of     fact    and   had   issued   a

preliminary injunction.        Although we held that the district court

     2
         The OTS also argues that issue preclusion is inapplicable
because there is no privity between the parties. The plaintiffs
counter that decisions rendered against one federal agency have
preclusive effect against another, citing 18 WRIGHT ET AL., FEDERAL
PRACTICE AND PROCEDURE § 4458 (1981). In light of our determination
above, we need not consider this contention.

                                      10
did not abuse its discretion in granting the injunction because the

movant had made the proper showing, we nevertheless remanded the

case to the district court so it could issue its own findings.

More is required here since the district court merely took notice

of the bankruptcy court's findings.          We also recognize that an

appellate court can review a district court record in the absence

of   findings   and   conclusions    as   long   as   (1)   the   record   is

exceptionally clear and (2) remand would serve no useful purpose.

White v. Carlucci, 862 F.2d 1209, 1210-11 n.1 (5th Cir. 1989).             In

this case, however, we find that disputes in the record warrant

remand.    Under Manges, we must remand the case to the district

court for issuance of its own findings of fact and conclusions of

law.

       Finally, an evidentiary hearing is necessary on remand only if

the parties are disputing material facts.        Otherwise, a hearing on

the basis of briefing and affidavits is sufficient.               Parker v.

Ryan, 959 F.2d 579, 583 (5th Cir. 1992); FSLIC v. Dixon, 835 F.2d
554, 558 (5th Cir. 1987).     The record reveals several disputes of

material fact that the district court must necessarily resolve in

deciding whether to issue the injunction.         An evidentiary hearing

thus is in order upon remand.

                           III.     CONCLUSION

       The district court did not consider whether the plaintiffs

made the requisite showing to warrant suspension of the Temporary

                                     11
C&D.    The district court also did not issue its own findings of

fact and conclusions of law.        We vacate the suspension of the

Temporary C&D and remand to the district court for an evidentiary

hearing    on   the   plaintiffs'   application   for   a   preliminary

injunction.

       VACATED AND REMANDED.

                                    12