United States District Court, Northern District of Illinois, E.D
November 13, 1984
FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, PETITIONER,
GLEN ELLYN SAVINGS AND LOAN ASSOCIATION, RESPONDENT.
The opinion of the court was delivered by: Shadur, District Judge.
Federal Savings and Loan Insurance Corporation ("FSLIC") has filed its
Petition under 12 U.S.C. § 1730(k)(2)*fn1
for enforcement of a cease
and desist order (the "Order") issued August 11, 1976 against Glen Ellyn
Savings and Loan Association ("Glen Ellyn"), an institution insured by
FSLIC. For the reasons stated in this memorandum opinion and order,
FSLIC's petition is granted.
In 1976 FSLIC charged Glen Ellyn with numerous violations of federal
and state regulatory provisions applicable to Illinois-chartered,
FSLIC-insured savings and loan associations. Those violations, in FSLIC's
view, were "unsafe or unsound practices" warranting the entry of a cease
and desist order as provided in Section 1730(e). Glen Ellyn chose not to
contest FSLIC's judgment. It consented to entry of the Order, avoiding
the institution of cease-and-desist proceedings under the statute.
Periodic examinations of Glen Ellyn since 1976 have revealed continuing
violations of various provisions of the Order. FSLIC has not responded by
seeking judicial enforcement of the Order. Instead it has engaged in
frequent negotiation and discussion with Glen Ellyn to obtain correction
of the violations—informal means upon which FSLIC typically relies
to seek compliance with a cease-and-desist order. Only in cases where
such efforts repeatedly fail does FSLIC resort to judicial enforcement
proceedings.*fn2 This year the examiner's discovery of violations of ten
of the Order's 26 provisions prompted FSLIC's resort to this Court for
During this Court's October 5, 1984 evidentiary hearing FSLIC presented
of Larry E. Ferries ("Ferries"), the Federal Home Loan Bank Board
("Board") examiner who conducted the 1984 examination. Ferries listed and
explained the multiple violations of the Order reflected in the
examination report. FSLIC also submitted copies of reports covering the
preceding three years' examinations.
Glen Ellyn offered no testimony at the hearing. It introduced copies of
letters submitted in response to FSLIC's examination reports. Def. Ex.
2-6. While those letters question the existence of some of the violations
identified by the examiners, they acknowledge the accuracy of the
examination reports as to numerous violations and indicate Glen Ellyn's
intent to take appropriate corrective action.
Glen Ellyn's real defense to the Petition is a laches argument
(tendered by an "Addendum to Answer and Affirmative Defenses," filed the
day of this Court's hearing). It contends FSLIC had not sought
enforcement of the Order in the more than eight years since it was agreed
to, a period in which there have been changes in (1) the ownership of
Glen Ellyn's common stock, (2) the composition of Glen Ellyn's board of
directors and (3) Glen Ellyn's management. Glen Ellyn asserts those
changes were predicated, at least in part, on the belief FSLIC would seek
no further enforcement of the Order. Under those circumstances, Glen
Ellyn says, FSLIC should be barred from enforcement by the equitable
doctrine of laches.
FSLIC's Right to Enforcement
In both contractual and statutory terms, FSLIC's right to enforcement
is plain. Glen Ellyn's consent to entry of the Order in 1976-and to its
enforceability thereafter—was unequivocal (Pl. Ex. 1):
Glen Ellyn stipulates and agrees that said Order shall
be deemed to be a "cease-and-desist order which has
become final" as defined in Section 407(q)(1)(A) of
the Act (12 U.S.C. § 1730(q)(1)(A)), that it
fully complies with all requirements of law, and that
the said Order shall become effective upon its
issuance and be enforceable by the FSLIC under the
provisions of Section 407(k)(2) of the Act (
12 U.S.C. § 1730(k)(2)).
Nor does the Order contain any expiration provision. Indeed, Section
1730(e)(2) negates any concept comparable to a "sunset law":
A cease-and-desist order . . . shall remain effective
and enforceable except to such extent as it is
stayed, modified, terminated, or set aside by action
of the Corporation or a reviewing court.
FSLIC itself has declined to take any such action. In March 1980 Glen
Ellyn petitioned FSLIC to terminate the Order. In denying that petition,
Board supervisory agent David J. Kalina*fn4
explained (Ans. Ex. B):
1. As a matter of policy, cease and desist orders will not be
terminated until five years after issuance date.
2. The Board would usually require a record of no violations for at
least two consecutive examinations immediately preceding the
Neither of those conditions had been met in 1980, and the second has yet
to be. Absent some specific action to terminate by FSLIC, the Order thus
remains in effect and subject to enforcement at FSLIC's discretion.
That conclusion is buttressed by the language of Section 1730(k)(2),
which says in so many words (and without any qualifying language) FSLIC
"in its discretion" may seek enforcement in the courts. That
discretionary delegation is reflective of Congress' aim in creating the
cease-and-desist powers (S.Rep. No. 1482, 89th Cong. 2d Sess., reprinted
in 1966 U.S.Code Cong. & Ad.News 3532, 3537-38 (hereafter cited "S.Rep.
to provide the federal agencies supervising savings
and loan associations with "additional flexible and
effective supervisory powers" to supplement existing
remedies that had proved "too drastic for use in many
cases" as well as "too cumbersome to bring about
prompt correction [when] promptness is very often
And such vesting of discretion is consistent with the general doctrine
that an administrative agency's special knowledge and expertise in the
areas of its jurisdiction command judicial respect for the agency's
choices as to how it will exercise its remedial powers. NLRB v. Gissell
Packing Co., 395 U.S. 575, 612 n. 32, 89 S.Ct. 1918, 1939 n. 32, 23
L.Ed.2d 547 (1969).
Faced with such an uncontrovertible showing of FSLIC's power to obtain
enforcement, Glen Ellyn is compelled to fall back on a laches defense.
Surprisingly the availability of such a defense to bar enforcement of an
FSLIC cease-and-desist order appears to be a question of first
Glen Ellyn does not really support its position with reasoning or
authority. Instead it simply asserts enforcement of the Order at this
late date would be fundamentally unfair (R. Mem. 9-10):
Petitioner may not have it both ways. If the
violations are as severe and serious as alleged,
Petitioner should have, in the discharge of its duties
as establish[ed] by Congress, brought suit long ago to
enforce the "cease and desist order." If, on the other
hand, as Respondent contends, the violations, if any,
are minor, clerical and inevitable, the action of the
Petitioner is not only barred by laches but is an
abuse of authority.
FSLIC, by contrast, offers three arguments for the proposition that
laches is not an available defense:
1. Nothing in the statute under which FSLIC operates contemplates the
effective termination of a cease-and-desist order by a district court
presiding over an enforcement proceeding.
2. Case law involving other governmental agencies indicates laches is
no defense to agency enforcement of an otherwise valid order.
3. Laches is not appropriate in the circumstances of this case. Those
contentions will be addressed in turn.
1. Statutory Provisions
Section 1730(k)(2), after authorizing FSLIC's resort to a federal
district court for enforcement of a final cease-and-desist order, goes on
[E]xcept as otherwise provided in this section no
court shall have jurisdiction to affect by injunction
or otherwise the issuance or enforcement of any notice
or order under this section, or to review, modify,
suspend, terminate or set aside any such order or
Section 1730(j)(2) confers such jurisdiction in the course of judicial
review by courts of appeal of cease-and-desist orders issued after a
hearing before FSLIC:
Any party to the proceeding, or any person required by
an order issued under this section to cease and desist
from any of the violations or practices stated
therein, may obtain a review of any order, served
pursuant to paragraph (1) of this
subsection (other than an order issued with the
consent of the institution or the director or officer
or other person concerned, or an order issued under
subsection (h)(1) of this section), by filing in the
court of appeals of the United States for the circuit
in which the principal office of the institution is
located, or in the United States Court of Appeals for
the District of Columbia Circuit, within thirty days
after the date of service of such order, a written
petition praying that the order of the Corporation be
modified, terminated, or set aside. . . . Upon the
filing of such petition, such court shall have
jurisdiction, which upon the filing of the record
shall, except as provided in the last sentence of said
paragraph (1), be exclusive, to affirm, modify,
terminate, or set aside, in whole or in part, the
order of the Corporation.
No comparable statutory provision deals in terms with orders entered by
Were this Court to pass upon the laches defense, FSLIC argues, it
effectively would have reviewed or even "terminated" the
Order—something it has no jurisdiction to do under Section
1730(k)(2) and Section 1730(j)(2). There is perhaps some surface
plausibility to drawing a negative inference from the absence of a
specific statutory provision as to consent orders that would parallel the
last-quoted sentence of Section 1730(j)(2) (limited as it is to orders
entered after hearing). But on analysis that contention proves too much.
Sections 1730(j)(2) and 1730(k)(2) clearly reflect the congressional
intention that an enforcement proceeding should not become the occasion
for second guessing FSLIC's judgment in issuing the Order in the first
place. But that cannot mean a district court presiding over an enforcement
proceeding is nothing more than a rubber stamp—or more accurately, a
strong arm.*fn6 Section 1730(k)(2) provides, after all, that FSLIC may
"apply to the United States district court . . . for enforcement"
(emphasis added). To the extent such an application is opposed on an
equitable ground that does not go to the propriety or effectiveness of
the order itself, but only to the question of its enforceability, the
district court in the proper exercise of its jurisdiction under Section
1730(k)(2) must address them.
Glen Ellyn's laches defense calls on this Court to determine whether a
fundamental equitable doctrine is applicable to and bars enforcement of
an otherwise valid cease-and-desist order. Jurisdiction to entertain
FSLIC's enforcement petition must embrace the power to make that
2. Case Law
FSLIC cites numerous cases as establishing laches "cannot be asserted
against the United States in its sovereign capacity to enforce a public
right or to protect the public interest." United States v. Arrow
Transportation Co., 658 F.2d 392, 394 (5th Cir. 1981). As the Supreme
Court explained in Costello v. United States, 365 U.S. 265, 281, 81
S.Ct. 534, 543, 5 L.Ed.2d 551 (1961):
The reason underlying the principle, said Mr. Justice
Story, is "to be found in the great public policy of
preserving the public rights, revenues, and property
from injury and loss, by the negligence of public
officers." United States v. Hoar, 26 Fed.Cas. 329, 330
(No. 15, 373).
What is at stake here, of course, is not precisely "preserving the public
rights, revenues, and property from injury and loss." S.Rep. at 3538 has
rather cast the policy FSLIC serves as one "to make sure our banks and
savings and loan associations . . . continue to serve the Nation
effectively and well."
Although direct authority as to FSLIC is lacking, there are analogous
precedents that suggest laches may be a potentially available defense
here. In NLRB v. Pool Manufacturing Co., 339 U.S. 577, 579-82, 70 S.Ct.
830, 831-33, 94 L.Ed. 1077 (1950), for example, the Supreme Court
considered whether NLRB's delay of more than two years in seeking
enforcement of a cease-and-desist order gave rise to a laches defense. In
the course of its analysis (id. at 580-81, 70 S.Ct. at 832, citations
omitted) the Court spoke in terms that might well be used to describe
FSLIC's supervisory authority over insured savings and loan
The Board is of course charged with primary
responsibility in effectuating the policies of the
[National Labor Relations] Act. It has determined that
those policies are advanced in some cases by resorting
to the processes of negotiation with the employer
rather than the compulsion, as well as the trouble and
expense, of an enforcement decree. . . . In some cases
delay in enforcement may be helpful in reaching an
immediate solution of the problem; in others,
exhaustion of negotiation techniques before a decree
is requested may consume many months after the Board's
order and before such techniques fail. We are of the
opinion that a strict judicial time limitation of the
duration presented in the instant case would frustrate
the deliberate purpose of Congress in permitting, but
not requiring, resort to an enforcement decree. . . .
We must not forget that the "question whether the
settlement [with the employer] shall be accepted as
definitive is for the Board to decide. . . ." . . . .
The employer, who could have obtained review of the
Board order when it was entered . . . is hardly in a
position to object. . . .
On that reasoning, the Court concluded laches did not under the
circumstances bar enforcement of the NLRB order, though it specifically
reserved decision on the question (id. at 582, 70 S.Ct. at 833):
whether a period of delay through its length alone may
mature into a denial of an enforcement decree or make
necessary the adduction of additional evidence.
Pool's failure to reject laches as a matter of law at least implies the
availability of such a defense if the facts are right.
Costello provides less comfort to Glen Ellyn, for that case rehearsed
the proposition that laches is not available against the sovereign. But
the Court did not invoke the rule in upholding the government's right to
preserve denaturalization proceedings against an individual for an offense
that had occurred 27 years earlier (365 U.S. at 282, 81 S.Ct. at 543):
None of the cases in this Court considered the
question of the application of laches in a
denaturalization proceeding. However, even if we
assume the applicability of laches, we think that the
petitioner failed to prove both of the elements which
are necessary to a recognition of the defense. Laches
requires proof of (1) lack of diligence by the party
against whom the defense is asserted, and (2)
prejudice to the party asserting the defense.
Again the Court held the defense had not been made out in the
circumstances of the case.
Pool and Costello, then, do not necessarily foreclose Glen Ellyn's
laches defense.*fn8 This Court will therefore take a leaf from
the Costello book and assume arguendo the possibility such a defense
could lie. Even if so, however, the cases clearly indicate how formidable
a hurdle Glen Ellyn must surmount to prevail on such a defense. It must
not only show lack of diligence by FSLIC and prejudice to itself; it must
also overcome the substantial public policy favoring FSLIC discretion.
3. Propriety of Laches in the Circumstances
At last this opinion arrives at the merits (more accurately, the lack
of merit) of Glen Ellyn's assertion of laches. It has scarcely proved
worth the trip, for Glen Ellyn plainly cannot make out the defense in the
circumstances of the present case. Even if it were assumed granting the
Petition after eight years would prejudice Glen Ellyn,*fn9 no basis
exists for charging FSLIC with lack of diligence as to the Order. In
denying Glen Ellyn's 1980 petition for termination, FSLIC noted recurring
violations of the Order. Each of the four examination reports since then
has done the same. In each instance FSLIC sought correction of the
violations, as Glen Ellyn's letters in response to the examination
reports implicitly acknowledge.
Essentially Glen Ellyn argues for a rule that would force the
administering agency to hale the offending institution into court for
every violation (or at least material violation), rather than pursuing
less formal means, on peril of losing the right to enforce a consensual
cease-and-desist order. That kind of premium on litigiousness cannot
represent sound public policy generally. It does not do so here, in part
because it would subvert Congress' announced purposes (quoted earlier in
this opinion) to provide the savings and loan regulatory agencies with
flexible and effective supervisory powers.
In sum (1) FSLIC is entitled to judicial enforcement of the Order and
(2) Glen Ellyn cannot make out a defense of laches. Accordingly FSLIC's
Petition is granted. Glen Ellyn is ordered to comply with the provisions
of the Order.