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Telegraph Sav. & Loan Ass'n v. Schilling

OPINION FILED MAY 25, 1983.

TELEGRAPH SAVINGS & LOAN ASSOCIATION OF CHICAGO ET AL., PLAINTIFFS-APPELLANTS,

v.

WILLIAM J. SCHILLING, INDIV. AND AS COMMISSIONER OF SAVINGS AND LOAN ASSOCIATIONS FOR THE STATE OF ILLINOIS, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. George A. Higgins, Judge, presiding.

JUSTICE O'CONNOR DELIVERED THE OPINION OF THE COURT:

Rehearing denied June 29, 1983.

Plaintiffs, Telegraph Savings & Loan Association of Chicago (Telegraph) and the officers and directors thereof, appeal from the order of the circuit court of Cook County dismissing with prejudice their chancery action against defendant, William J. Schilling, individually and as Commissioner of Savings and Loan Associations for the State of Illinois (Commissioner). By their suit, plaintiffs sought relief from defendant for his closing of Telegraph without giving the advance statutory written notice required except where an emergency existed; and without the Commissioner making a finding that an emergency existed.

Section 7-8 of the Illinois Savings and Loan Act (Ill. Rev. Stat. 1981, ch. 17, par. 3191, formerly Ill. Rev. Stat. 1979, ch. 32, par. 848) details the Commissioner's authority to take custody of a savings and loan association and concludes:

"Unless the Commissioner finds that an emergency exists which may result in loss to members or creditors and requires that he take custody immediately, he first shall give written notice to the directors, trustees, or liquidators specifying the conditions criticized and state a reasonable time within which correction may be made."

Section 7-12 of the Illinois Savings and Loan Act (Ill. Rev. Stat. 1981, ch. 17, par. 3195, formerly Ill. Rev. Stat. 1979, ch. 32, par. 852) provides:

"Immediately upon taking custody of an association or trust, the Commissioner shall mail a written notice thereof to the president or secretary and not less than 2 directors of such association, or to 2 or more of the trustees of any trust, or 2 or more of the liquidators of an association in liquidation. If the contention is made that the Commissioner has no legal grounds for taking custody of the association or trust, the directors or officers of the association or the trustees or liquidators thereof, as the case may be, at any time within 10 days after the mailing of such notice, or within such further periods of time as the Commissioner may extend, but not to exceed an additional 60 days, may file a complaint in the Circuit Court of Sangamon County, Illinois or in the Circuit Court of the county in which the association is located, to enjoin further custody. The court thereupon shall cite the Commissioner to show cause why further custody should not be enjoined. If upon a hearing thereon, the court finds that such grounds did not or do not then exist, it may enter an appropriate order in accordance with the findings of fact, or an order enjoining the Commissioner or any appointees acting under his direction from further custody."

Defendant filed a 12-point motion to dismiss, which was granted. The three grounds stated by the trial court in granting the motion were: (1) the Federal court had assumed exclusive jurisdiction over the matter; (2) injunctive relief was no longer effective; and (3) the action was sustainable only in the law division rather than the chancery division.

The factual background of this litigation is stated by the United States Court of Appeals for the Seventh Circuit in its opinion in the consolidated appeals of Telegraph Savings & Loan Association v. Schilling (7th Cir. 1983), 703 F.2d 1019. This opinion was handed down on March 29, 1983, after the oral argument in the case at bar. The court there stated:

"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. 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 [required, unless an emergency exists, by Ill. Rev. Stat. 1979, ch. 32, par. 848, now Ill. Rev. Stat. 1981, ch. 17, par. 3191]. 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 ...


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