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TELEGRAPH S & L ASS'N v. FEDERAL S & L INS. CORP.

February 19, 1982

TELEGRAPH SAVINGS AND LOAN ASSOCIATION, ET AL., PLAINTIFFS,
v.
FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, ET AL., DEFENDANTS.



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

    MEMORANDUM OPINION

This is an action brought by Telegraph Savings & Loan Association ("Telegraph" or the "Association") to remove the Federal Savings & Loan Insurance Corporation ("FSLIC") as receiver of its assets and to obtain equitable and monetary relief for harm suffered as a result of the sale of those assets. The complaint is in ten counts and alleges causes of action under a variety of state and federal statutes and constitutional provisions. On June 9, 1981, 564 F. Supp. 862, this court ordered that Count III (which contained the claim that the FSLIC was unlawfully appointed receiver of its assets) be severed from other counts and set for expedited trial.

Trial of Count III began on September 10, 1981, and ran with interruptions through January 7, 1982. The court heard nearly a dozen witnesses, most of them experts in the fields of finance, savings and loan associations, and accounting. Having considered the testimony and exhibits offered, the court is of the opinion that the FSLIC was lawfully appointed receiver of Telegraph's assets. For the reasons set forth below, we therefore deny the Association's application to remove that agency as receiver.

I. Background

As we discussed in our summary judgment opinion filed June 9, 1981, pursuant to 12 U.S.C. § 1729(c)(2) (1980), the Bank Board has "exclusive power and jurisdiction" to appoint the FSLIC receiver for the assets of an insured state savings and loan association in the event that the Bank Board determines:

  (A) that . . . (ii) an insured institution (other
  than a Federal savings and loan association) has
  been closed by or under the laws of any State;
  (B) that one or more of the grounds specified in
  paragraph (6)(A) of section 1464(d) of this
  title, existed with respect to such institution
  at the time a conservator, receiver, or other
  legal custodian was appointed, or at the time
  such institution was closed . . .; and
  (C) that one or more of the holders of
  withdrawable accounts in such institutions is
  unable to obtain a withdrawal of his account, in
  whole or in part;

Section 1464(d)(6)(A), referred to in subsection (B) of the foregoing statute, provides that

  The grounds for the appointment of a conservator
  or receiver for an association shall be one or
  more of the following:
    (i) insolvency in that the assets of the
    association are less than its obligations to
    its creditors and others, including its
    members:. . . .

At trial, defendants took a different, and surprising, tack. Rather than dispute the reasonableness of the Bank Board's projections, plaintiffs chose to dispute, by way of an attack on the Board's interpretation of § 1464(d)(6)(A)(i), the method by which the Board computed insolvency. When, for reasons set forth below, these challenges to the Bank Board's interpretation of the statute ran into difficulty, plaintiffs mounted a constitutional attack on the statute. Plaintiffs now rely chiefly on this constitutional challenge.

We first address the challenges to the Bank Board's interpretation of the insolvency statute and then the constitutional issues.

II. Challenges To The Bank Board's Construction of §
    1464(d)(6)(A)(i)

Section 1464(d)(6)(A)(i) provides that

  The grounds for the appointment of a conservator
  or receiver for an association shall be one or
  more of the following: (i) insolvency in that the
  assets of the association are less than its
  obligations to its creditors and others,
  including its members;. . . .

12 U.S.C. § 1464(d)(6)(A) (1980).

The Bank Board has consistently interpreted this statute as defining insolvency in terms of negative net worth based on a valuation of assets at book value. Thus, in determining whether an association is insolvent, the Bank Board merely subtracts all liabilities from the book value of all the assets. If the result is less than zero, the association is considered insolvent within the meaning of the statute.

Plaintiffs asserted that the statute contains certain ambiguities. Specifically, they argued that the terms "assets" and "obligations" are susceptible to interpretations other than the Board has given them and that these other constructions are more consistent with the intent of the statute.

The Bank Board's authority to interpret § 1464(d)(6)(A) is derived from § 1464(a)(1) of the same title. That section states that

  In order to provide local mutual thrift
  institutions in which people may invest their
  funds and in order to provide for the financing
  of homes, the Board is authorized under such
  rules and regulations as it may prescribe, to
  provide for the organization, incorporation,
  examination, operation, and regulation of
  associations to be known as "Federal Savings and
  Loan Associations. . . .

Section 1464(d)(1) also gives the Bank Board the "power to enforce this section and the rules and regulations made hereunder."*fn1

We decide questions of statutory construction in this case with due respect for the "venerable principle that the construction of a statute by those charged with its execution should be followed unless there are compelling indications that it is wrong, especially when Congress has refused to alter the administrative construction." Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381, 89 S.Ct. 1794, 1801, 23 L.Ed.2d 371 (1969); Espinoza v. Farah Manufacturing Co., 414 U.S. 86, 94-95, 94 S.Ct. 334, 339, 38 L.Ed.2d 287 (1973). The degree of deference is enhanced where the agency participated in the development of the statute it administers, Miller v. Youakim, 440 U.S. 125, 144, 99 S.Ct. 957, 968, 59 L.Ed.2d 194 (1979), where the agency has applied the challenged construction consistently over a number of years, United States v. National Association of Security Dealers, 422 U.S. 694, 719, 95 S.Ct. 2427, 2442, 45 L.Ed.2d 486 (1975); N.L.R.B. v. Boeing Co., 412 U.S. 67, 75, 93 S.Ct. 1952, 1957, 36 L.Ed.2d 752 (1973), and where "Congress has reenacted the statute without pertinent change. In these circumstances, congressional failure to revise or repeal the agency's interpretation is persuasive evidence that the interpretation is the one intended by Congress." N.L.R.B. v. Bell Aerospace Co., 416 U.S. 267, 275, 94 S.Ct. 1757, 1762, 40 L.Ed.2d 134 (1974). Finally, we note that "[w]e need not find that the construction is the only ...


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