Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Telegraph Savings and Loan Association v. Schilling

decided: March 29, 1983.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 80 C 2782 -- Prentice H. Marshall, Judge.

Bauer, Coffey, Circuit Judges, and Hoffman, Senior District Judge.*fn*

Author: Bauer

BAUER, Circuit Judge.

In this appeal Telegraph Savings & Loan Association (Telegraph) challenges its closure by the Illinois Commissioner of Savings and Loan Associations (Commissioner), the appointment of the Federal Savings & Loan Insurance Corporation (FSLIC) as receiver and the subsequent sale of Telegraph's assets to First Federal Savings & Loan Association. The district court held that the takeover and sale were proper. We affirm.

Telegraph was an Illinois chartered savings and loan association owned by one hundred and twenty stockholders and insured by the FSLIC. In the late 1970's Telegraph began experiencing financial difficulties. As a result of heavy losses, it was unable to satisfy the reserve and net worth minimums required by 12 C.F.R. § 563.13. When Telegraph's financial condition continued to decline at an ever-increasing rate, the state and federal officials charged with regulating savings and loan associations became alarmed. A special meeting was held in October, 1979, to identify the cause of Telegraph's decline and to propose some solutions. Telegraph's Board of Directors and representatives of the Commissioner, the FSLIC and the Federal Home Loan Bank Board (FHLBB) attended. At this meeting the Commissioner concluded that undercapitalization was causing Telegraph's shaky financial condition and indicated that, unless this situation was remedied, the state would have to assume custody.

Additional meetings were held in 1979 and 1980 to monitor Telegraph's financial status and to develop a plan for infusing Telegraph with new capital. Possible mergers were considered but only one concrete plan surfaced. The Heron Corporation offered to purchase 80% of Telegraph's preferred stock if the FSLIC would finance the purchase with a fifteen -year interest free loan.*fn1 The FHLBB vetoed the Heron Proposal.

When no other buyers came forward, the Commissioner and federal officials concluded that they had no choice but to take control. A takeover plan was devised whereby the Commissioner would assume custody of Telegraph and FHLBB would immediately appoint the FSLIC receiver. The FSLIC, in turn, would immediately transfer Telegraph's assets to First Federal Savings & Loan Association under a purchase and assumption agreement.

According to this prearranged plan, the takeover was effected on May 22, 1981 at Telegraph's main office. Just before the usual closing time the Commissioner served Telegraph's president with a notice that the state was assuming immediate custody. The notice explained that Telegraph's financial instability had created an emergency situation which necessitated the takeover. Telegraph had not received prior written notice of this decision.*fn2 After serving the president with the notice, the Commissioner sent his deputy to the teller's window where one of Telegraph's customers, A. Raymond Bacon, was waiting to withdraw twenty-five dollars. Bacon was making the withdrawal solely because the FHLBB had requested him to do so. When Bacon approached the teller, the deputy intervened. He took the withdrawal slip from Bacon and handed it, along with an affidavit stating that Bacon had been unable to withdraw his money, to the FHLBB agent. The purchase and assumption agreement was executed immediately, and the next day Telegraph's operation opened under First Federal's name.

Telegraph then filed identical actions challenging the takeover and the appointment of the FSLIC as receiver in the federal court for the Northern District of Illinois and in the state court in the Circuit Court of Cook County. The federal action was assigned to Judge Grady. The state action was removed to federal court and assigned to Judge Marshall. Judge Marshall held that federal courts have exclusive jurisdiction over any action to remove the FSLIC as receiver and concluded that, since the state court never had jurisdiction over the action, it had no authority to remove it to federal court. Declining to grant Telegraph's request to remand back to the state court, Judge Marshall dismissed the action. Telegraph appealed to this court.

Telegraph also filed a new state court action, this time proceeding against the Commissioner but not the federal agencies. The state court, relying on Judge Marshall's opinion that federal courts have exclusive jurisdiction, dismissed that action. Telegraph appealed this dismissal; that appeal is currently pending in the state court.

The central issue in the case proceeding before Judge Grady was whether the requirements for appointment of an FSLIC receivership, set forth in 12 U.S.C. § 1729(c)(2) had been satisfied. Section 1729(c)(2) provides that the FHLBB has the authority to appoint the FSLIC receiver over a state savings and loan institution whenever it determines:

(A) that . . . (ii) an insured institution has been closed by or under the laws of any State; and

(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 institution is unable to obtain a withdrawal of his account, in whole or in part; . . .

12 U.S.C. § 1729(c)(2). Judge Grady concluded in response to defendants' motion for summary judgment that subsections (A) and (C) had been satisfied.

Thereafter a bench trial was held on the issue of whether subsection (B) had been satisfied. The FHLBB argued that applying the statutory test of insolvency, which is whether the "assets of the association are less than its obligations to its creditors and others . . .," 12 U.S.C. § 1464(d)(6)(A)(i), Telegraph had been insolvent at the time of the appointment. Therefore, the FHLBB contended, section 1729(c)(2)(B) had also been fulfilled. Judge Grady agreed and entered judgment in favor of defendants.

On appeal Telegraph assigns numerous errors. It argues that the district court erred in granting partial summary judgment because the trial judge erroneously refused to consider state law issues which raised questions of material fact precluding summary disposition. It also asserts that subsections (A) and (C) cannot be satisfied by a prearranged closing orchestrated in tandem by state and federal authorities because such joint action subverts the purpose of the statute. With respect to the trial, Telegraph asserts that the finding that Telegraph was insolvent must be reversed because: (1) the statutory test of insolvency is unreliable and irrational; (2) highly relevant evidence was improperly excluded; and (3) the judge did not accord proper weight to the testimony of Telegraph's primary witness. Judge Marshall's dismissal of the action removed from state court is also part of this appeal, as are numerous rulings relating to Counts I, II, IV, VI, IX and X.

Before analyzing Telegraph's contentions, we note that Telegraph attempts to support its position with a myriad of arguments, some of which are unsupported by legal authority. Since many of these arguments were raised, fully analyzed and properly rejected by the trial judge in four extensive memorandum opinions, Telegraph Savings & Loan Ass'n v. Federal Savings & Loan Insurance Corp., 564 F. Supp. 862 (N.D. Ill. 1982), we confine our analysis to those arguments which are dispositive of this appeal.


A basic understanding of the federal statutory scheme is essential to an analysis of the technical issues and specific sections involved here. The National Housing Act, 12 U.S.C. § 1701 et seq. created the FSLIC, under the direction of the FHLBB, to insure both federal and state savings and loan associations. 12 U.S.C. § 1725(a). When the statute was first enacted, the FSLIC could become receiver for a state savings and loan association only if the state requested its appointment. The FHLBB did not have independent authority to appoint the FSLIC as receiver for a state institution. 12 U.S.C. § 1729(c)(1).

Under section 1729(c)(1), the FSLIC was obligated to make insurance payments when a state association failed, even in situations where the state had refused to appoint the FSLIC as receiver, and, thus had deprived it of any voice in the liquidation process. For this reason, in 1968, after several state associations had failed and state authorities had refused to appoint the FSLIC receiver, the statute was amended to provide for greater federal control. Senate Report No. 1263, 90th Cong., 2d Sess. reprinted in 1968 U.S. CODE CONG. & AD. NEWS 2530, 2534. Section 1729(c)(2) was added, granting the FHLBB independent authority to appoint the FSLIC receiver for a ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.