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March 14, 1967


The opinion of the court was delivered by: Will, District Judge.


Plaintiff, Federal Savings and Loan Insurance Corporation ("FSLIC"), has brought this declaratory judgment action in which it seeks a determination that it is not liable to pay defendants, and the class they represent, the amount of a dividend declared by the directors of Marshall Savings and Loan Association ("Marshall"). Marshall has, since July 3, 1951, been an FSLIC-insured institution under Title IV of the National Housing Act ("NHA").

On April 8, 1965 Marshall was in "default" within the meaning of Section 401(d) of the NHA, 12 U.S.C. § 1724(d), at which time plaintiff, pursuant to Section 405(a) and (b) of the NHA, 12 U.S.C. § 1728(a)(b), became obligated to members of Marshall for the full withdrawal or repurchasable value of their accounts up to an amount not in excess of $10,000 for each member.*fn1

The dividend, which is the subject matter of this law suit, was declared by Marshall's directors on December 15, 1964, to be credited and payable as of the opening of business on December 31, 1964. Prior to the opening of business on December 31, however, the Director of Financial Institutions of the State of Illinois, Joseph E. Knight ("Knight"), took custody of the books, records, accounts and assets of Marshall. His action followed a series of events which are detailed below. Knight appointed a custodian and ultimately, on April 8, 1965, appointed a receiver. By virtue of the appointment of a receiver for the purpose of liquidation, Marshall was in default.

Shortly after the default, a letter was sent to the insured Members of Marshall by the Director of the Federal Savings and Loan Association in which he stated that each insured member would receive the amount of his investment including dividends "which have been heretofore declared and credited to the books of the association" subject, of course, to the $10,000 limitation. Although the December dividend appeared on each of the individual account ledger cards as a memoed entry, it had not been posted to those cards, and, therefore, was not reflected in the Balance columns of the cards. The December dividend was not included by the Receiver in computing the withdrawal value of the accounts. Subsequent to April 19, 1965, FSLIC paid insurance to the Huttners and Voliners, and to all members of the class they represent, in amounts equal to the respective balances of their accounts as reflected in the Balance columns of the account ledger cards at Marshall. These amounts did not include the December dividend. Various members of the class which defendants represent demanded payment of the December dividend by the FSLIC, which refused their demands.

The parties have stipulated and the court agrees that the requirements of Rule 23 of the Federal Rules of Civil Procedure are satisfied here, and, therefore, that this is a class action within the meaning of that rule. The defendants, Huttners and Voliners, were insured Members of Marshall and represent the class consisting of all insured Members of Marshall: (a) who were insured Members on and immediately prior to its opening for business on December 31, 1964, (b) who were determined by FSLIC to be holders of withdrawal capital accounts in Marshall as of April 8, 1965, (c) who submitted claims for insurance to FSLIC, and (d) who received payment of less than $10,000 from FSLIC.

The class consists of approximately 20,000 persons, and we conclude that joinder of all its members is impracticable. We further conclude that there are questions of law common to the class, that the claims or defenses of the defendants are typical of the claims or defenses of the class, that the prosecution of separate actions against individual members of the class would create the risk of inconsistent or varying adjudications and that the defendants will fairly and adequately protect the interests of the class.*fn2

Both sides have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. In addition, they have filed an extensive stipulation which the court adopts as the Findings of Fact. The court is in agreement with the parties that there are no remaining questions of fact, and therefore no additional Findings are necessary. We are thus prepared to rule on the ultimate legal question presented herein, whether the FSLIC is obligated to pay the December dividend as part of its insurance coverage to persons in this class.

                      PRACTICES OF MARSHALL

Marshall's by-laws provide that profits may be apportioned quarterly so that in the ordinary course the dividends declared "may be in the hands of or available to shareholders on or before * * * and December 31." On December 15, 1964, the resolution declaring a dividend to be credited and payable as of the opening of business on December 31, was adopted by the Board of Directors.

The term "savings account" in a savings and loan association is known as a "Withdrawal Capital account." That term encompasses both "Optional" and "Full-Paid accounts." The former is a type of account where the holder makes a minimum initial payment of at least $1.00 upon issuance of the account and thereafter makes subsequent payments in such amounts and at such time as he may elect. This is the customary savings account. Full-Paid accounts are accounts where the holder makes a single payment in units of $100, upon issuance of the account. Such accounts are sometimes termed "Investment accounts."

Marshall customarily credited dividends to the accounts of holders of Optional accounts. Upon request, however, such holders would be paid their dividends by check. The holders of 1,329 of Optional accounts at Marshall had requested that their December dividend be paid by check. Checks, dated December 31, 1964 and totaling $97,946.29 were typewritten by Marshall and executed by the appropriate officer. These checks in the normal course would have been mailed on the 31st, and if cashed would have been drawn on Marshall's Regular account at the Chicago City Bank and Trust Company, the commercial bank at which Marshall maintained its regular checking and special dividend accounts. The checks were never mailed or otherwise delivered to the holders of such accounts.

All holders of Full-Paid accounts normally received their dividends by check. Marshall maintained a separate Dividend account at the Chicago City Bank for the payment of dividends on Full-Paid accounts and 2,825 such checks, dated December 31, 1964 and totaling $189,662.31 in amount, were written and executed, but, as above, these checks were neither mailed or otherwise delivered. In the normal course, Marshall would order the transfer of funds from its Regular account at the Chicago City Bank to its Dividend account on dividend day and a check would be drawn on its Regular account. No check was drawn on December 31. Without such a transfer, the balance in the Dividend account would always be insufficient to pay the dividends on Full-Paid accounts.

It was the practice of Marshall to compute some time in advance the amount expected to be paid as a dividend on both Optional and Full-Paid accounts. With respect to Optional accounts, the computation of the amount expected to be due on each Optional account for the quarter ending December 31, 1964 was made by Marshall at the same time the actual amount of the dividend for the quarter ending September 30, 1964 was added to the balance on the account ledger card. Thus the last dividend was posted and the anticipated next dividend was memoed to the account ledger card of each account. This might be done several days after the last dividend became due and payable, but the posting and memoing were always dated as of the dividend day or the next business day thereafter, but not later than the first of the next month.

Marshall also maintained a series of records called "Control Sheets." A "Sheet" summarized the accounting data on a group of account ledger cards. Thus, the Control Sheets for all groups of all accounts summarized the next quarter's anticipated dividend, in a column entitled "Anticipated Dividend," which information also appeared, as noted above, as a memorandum entry on the individual account ledger cards. On dividend day it was Marshall's custom to post the actual amount of the dividend attributable to Optional accounts as a "Deposit" to the Control Sheets for Optional ...

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