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Valiquet v. First Federal Sav. & Loan

OPINION FILED SEPTEMBER 28, 1979.

HELEN VALIQUET, PLAINTIFF-APPELLANT,

v.

FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CHICAGO ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. JOHN F. HECHINGER, Judge, presiding.

MR. JUSTICE WILSON DELIVERED THE OPINION OF THE COURT:

Mr. JUSTICE WILSON delivered the opinion of the court:

Plaintiff appeals the dismissal of her shareholder derivative complaint which alleged that a Federal savings and loan association's directors and officers usurped the association's corporate opportunity to operate an insurance agency. She contends that the trial court erred when it dismissed her complaint on grounds that (1) a Federal agency had primary jurisdiction; and (2) she failed to allege facts sufficient to excuse a demand on directors of the association. We reverse and remand.

Plaintiff, a savings account depositor and voting member of First Federal Savings & Loan Association (Association), brought a shareholder's derivative suit against, among others, defendants Association, various present and former directors and/or officers of the Association, First Federal Agency, Incorporated (Insurance Agency), First Federal Employees' Retirement and Savings Fund (Retirement Fund), unknown trustees of the Retirement Fund, and Gus Larson, the treasurer and a known trustee of the Retirement Fund. Plaintiff's complaint alleged that the named directors and officers of the Association, a Federal savings and loan association chartered by the Federal Home Loan Bank Board, breached their fiduciary duty to the Association and its account holders by illegally and fraudulently diverting and usurping the Association's opportunity to operate an insurance agency. As early as 1968, the Association had the legal authority to become licensed as an insurance agent, either through a service corporation or through a wholly owned subsidiary of a service corporation, and to place member insurance business generated by or through the Association. The usurpation and diversion allegedly occurred from 1968 to the time of the filing of this complaint when, despite this legal authority, the directors and officers systematically directed that the insurance business of the Association's members be given to Insurance Agency, a corporation which was owned and operated by Retirement Fund and which had all of the Association's 14 active directors on its own board of directors. All income generated from this insurance business went into the general assets of the Retirement Fund, which ultimately benefited the officers and employees of the Association; Association members derived no benefit from these funds. Plaintiff's prayer for relief requested, among other things, that defendants account for damages resulting to the Association from the illegal and fraudulent acts and violations of fiduciary duties by the directors and officers and that they return any profits, gains, benefits, earnings and commissions which accrued to them by virtue of those acts and violations.

Defendants filed a motion to dismiss plaintiff's complaint, claiming that (1) the Federal Home Loan Bank Board had primary jurisdiction; (2) plaintiff failed to make a demand on the Association's directors and did not offer sufficient facts to excuse the making of such a demand; (3) plaintiff failed to make a demand on members of the Association; and (4) plaintiff failed to allege sufficient facts to support the allegations of fraud. The trial court granted defendants' motion on grounds that the Federal Home Loan Bank Board had primary jurisdiction and that a demand had not been made on the directors and sufficient grounds to excuse such a demand had not been alleged.

OPINION

I

Plaintiff initially contends that the trial court erred when it dismissed her complaint on grounds that the Federal Home Loan Bank Board (Board) had primary jurisdiction.

• 1, 2 The primary jurisdiction doctrine guides a court in deciding whether it should refrain from exercising its jurisdiction over a lawsuit until after an administrative agency has considered a question which has arisen in the suit. (3 Davis, Administrative Law § 19.01, at 3 (1958).) Under this doctrine, initial resort is made to an agency when the question involves matters within the agency's expert and specialized knowledge and when its determination is necessary so that parties who are subject to its continuous regulations are not victims of uncoordinated and conflicting requirements. (Nader v. Allegheny Airlines, Inc. (1976), 426 U.S. 290, 48 L.Ed.2d 643, 96 S.Ct. 1978.) The principal reason behind this doctrine is the need for an orderly and sensible coordination of the work of agencies and courts>. 3 Davis, Administrative Law § 19.01, at 5 (1958).

Initial resort to the Board was unnecessary here because there are no statutory or administrative procedures by which plaintiff might secure a hearing on her complaint and because the question of usurpation of corporate opportunity does not involve matters peculiarly within the Board's expert and specialized knowledge and a court's determination of the matter will not result in uncoordinated and conflicting requirements. Board regulations existent at the time of the alleged usurpation did not include any procedures by which plaintiff could trigger, obtain, or participate in an adjudication of her complaint. *fn1 (12 C.F.R. § 500 et seq. (1979).) Absent such procedures, the doctrine of primary jurisdiction does not apply. Rosado v. Wyman (1970), 397 U.S. 397, 25 L.Ed.2d 442, 90 S.Ct. 1207. Cf. Nader v. Allegheny Airlines, Inc. (1976), 426 U.S. 290, 48 L.Ed.2d 643, 96 S.Ct. 1978 (where the fact that Congress did not authorize individual consumers to initiate proceedings before Civil Aeronautics Board (CAB) indicated that Congress did not intend that consumers obtain a CAB ruling before proceeding with common law remedies).

Defendants argue that even though no formal procedures exist, there is nothing in the regulations which deprive plaintiff of access to the Board. They suggest plaintiff should have sent a letter to the Board concerning her complaint and that her failure to do so leaves her "without an equitable position before this court." We disagree. Although plaintiff could have sent a letter to the Board, there are no regulations requiring such an act and there is no guarantee that the Board would have acted on her complaint. Furthermore, even if we were to assume that plaintiff initially should have sent a letter of complaint to the Board, the Board lacks the remedial and jurisdictional powers necessary to grant all of the relief sought by plaintiff. Plaintiff's complaint seeks an accounting for damages and a return of profits, gains, benefits, earnings and commissions from defendants, including Insurance Agency and Retirement Fund. The Board lacks the statutory power to award damages (12 U.S.C. § 1464(d) (1976)) and has no jurisdictional power over either Insurance Agency or Retirement Fund. Under these circumstances, initial resort to the agency would be unproductive.

Defendants argue that the Board does have the power to grant all of plaintiff's requested relief since it has the power to appoint conservators and receivers. (12 U.S.C. § 1464(d)(1) (1976).) Yet, even with this power of appointment, the Board cannot grant the requested relief, but rather the conservator or receiver must petition a court for such relief.

Another reason for the inapplicability of the primary jurisdiction doctrine is that the question of usurpation of corporate opportunity does not involve matters peculiarly within the Board's expert and specialized knowledge. Board regulations make it clear that a Federal savings and loan association may engage in the insurance business (12 C.F.R. § 545.9-1 (1979)) and that a usurpation of such an opportunity violates Federal regulations and constitutes a breach of a fiduciary relationship. (12 C.F.R. § 571.9 (1979).) The only remaining question is whether a usurpation occurred under the circumstances of the present case. The standards to be applied in answering this question are traditional corporate laws and are thus "within the conventional competence of the courts>, and the judgment of a technically expert body is not likely to be helpful in the application of these standards to the facts of this case." Nader v. Allegheny Airlines, Inc. (1976), 426 U.S. 290, 305-06, 48 L.Ed.2d 643, 656, 96 S.Ct. 1978, 1987-88.

Defendants argue that the regulation on the conducting of an insurance agency by Federal savings and loan associations (12 C.F.R. § 555.17 (1979)) and a series of exceptions within that regulation do in fact involve extremely complex questions necessitating preliminary resort to the Board. We disagree. Upon careful review of the ...


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