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Telegraph Sav. & Loan Ass'n v. Schilling

OPINION FILED NOVEMBER 30, 1984.

TELEGRAPH SAVINGS & LOAN ASSOCIATION OF CHICAGO ET AL., APPELLEES,

v.

WILLIAM J. SCHILLING, INDIV. AND AS COMMISSIONER OF SAVINGS AND LOAN ASSOCIATIONS, APPELLANT.



Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit JUSTICE MORAN DELIVERED THE OPINION OF THE COURT:

Rehearing denied February 1, 1985.

Plaintiffs, Telegraph Savings and Loan Association of Chicago and the officers and directors thereof (collectively referred to as Telegraph), filed a complaint in the circuit court of Cook County against defendant, William J. Schilling, individually and as Commissioner of Savings and Loan Associations for the State of Illinois (Commissioner). Telegraph challenged the Commissioner's closing of the Association without advance written notice or a valid finding of an "emergency" situation which would excuse the advance-written-notice requirement (Ill. Rev. Stat. 1979, ch. 32, par. 848, now Ill. Rev. Stat. 1983, ch. 17, par. 3191). The Commissioner filed a motion to dismiss the action, which was granted. Telegraph appealed from the order of the circuit court, which dismissed the action against the Commissioner with prejudice. The appellate court reversed the dismissal order and remanded for further proceedings. (115 Ill. App.3d 331.) We allowed the Commissioner's petition for leave to appeal (87 Ill.2d R. 315(a)).

The central issue raised on appeal is whether Telegraph is entitled to a State court determination of the State-law "emergency" issue raised in its complaint.

The general background information necessary for an understanding of the issue is disclosed in the Seventh Circuit Court of Appeals opinion, Telegraph Savings & Loan Association v. Schilling (7th Cir. 1983), 703 F.2d 1019. In the late 1970's, Telegraph, an Illinois chartered savings and loan association, failed to meet the reserve and net worth minimums required by 12 C.F.R. section 563.13 (1980). As such, State and Federal officials responsible for the regulation of savings and loan associations met to analyze the source of Telegraph's financial difficulties. It was concluded that undercapitalization was responsible for Telegraph's financial decline. At this time, the Commissioner indicated that the State would be forced to assume custody if the situation were not remedied.

Telegraph's financial condition was the subject of subsequent meetings held in 1979 and 1980. A take-over plan was devised which involved the joint efforts of the Commissioner, the Federal Home Loan Bank Board (FHLBB), and the Federal Savings and Loan Insurance Corporation (FSLIC).

The record reveals that on May 22, 1980, the Commissioner took custody of Telegraph pursuant to section 7-8 of the Illinois Savings and Loan Act (Act) (Ill. Rev. Stat. 1979, ch. 32, par. 848). Section 7-8(e) provides in relevant part:

"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."

The Commissioner did not give advance written notice of intent to take custody. Rather, he appeared at Telegraph's offices on the day of the seizure with a document entitled "NOTICE OF TAKING CUSTODY OF TELEGRAPH SAVINGS AND LOAN ASSOCIATION OF CHICAGO." This notice states that the Commissioner had made a finding that the withdrawable and permanent reserve capital of Telegraph were impaired, creating an emergency situation and necessitating immediate custody by the Commissioner.

Almost immediately after the Commissioner presented Telegraph's president with the notice, the FHLBB appointed the FSLIC as receiver of Telegraph, pursuant to 12 U.S.C. § 1729(c)(2) (1976). The FSLIC immediately transferred Telegraph's assets to First Federal Savings and Loan Association under a purchase and assumption agreement.

In the instant appeal, the Commissioner has raised several issues for review by this court. Before we reach those issues, we must address an issue raised by Telegraph. It argues that this court lacks jurisdiction because the Commissioner failed to file his petition for leave to appeal within 35 days after the entry of the judgment appealed from, as mandated by Supreme Court Rule 315(b) (87 Ill.2d R. 315(b)). Rule 315(b) provides, on motion, for an extension of time for petitioning for leave to appeal. While the rule expressly states that "such motions are not favored and will be allowed only in the most extreme and compelling circumstances," this court, nonetheless, granted the Commissioner's motion based on the circumstances set forth therein. Accordingly, Telegraph's argument is without merit.

Because we find that this court does have jurisdiction, we turn to the arguments raised by the Commissioner. Initially he contends that Telegraph lacks capacity to maintain this action. In support of this contention he relies on 12 C.F.R. section 569a.4 (1980). Pursuant to this Federal regulation, the FSLIC, as receiver, succeeds to "all the rights, titles, powers and privileges of the insured institution * * * [as well as those of] its officers and directors * * *." Further, under the regulation, the officers and directors of the seized institution "shall not thereafter have or exercise any such rights, powers, or privileges or act in connection with any asset or property of any nature of the institution in receivership." As such, it is the Commissioner's position that Telegraph is precluded from prosecuting this action because "all property rights, including choses in action have been vested in the FSLIC."

The Commissioner cites three Federal cases which, he contends, adopt this position. (First Savings & Loan Association v. First Federal Savings & Loan Association (D. Hawaii 1981), 531 F. Supp. 251; First Savings & Loan Association v. First Federal Savings & Loan Association (D. Hawaii 1982), 547 F. Supp. 988; Manning Savings & Loan Association v. Federal Savings & Loan Insurance Corp. (N.D. Ill. Sept. 14, 1983), No. 83-C-757.) The Commissioner's reliance on these cases is misplaced. It is true that these cases expressly recognize that the FSLIC acquires all powers necessary to administer the operations of a seized institution pursuant to the regulations (12 C.F.R. sec. 569a.4 (1980)) promulgated under 12 U.S.C. § 1729(d) (1976). This includes the power to represent the institution in any legal action. (12 C.F.R. sec. 569a.6(a)(2-3) (1980).) At the same time, however, these cases acknowledge the limited right of an association to challenge the appointment of a receiver pursuant to 12 U.S.C. § 1464(d)(6)(A) (1976). The Illinois Savings and Loan Act contains similar provisions. Thus, pursuant to section 7-10 of the Act, the Commissioner, if he takes custody of an association, succeeds to "all powers necessary to accomplish the purposes of custody, including (but not limited to) the powers, privileges and authority previously vested in the officers, directors, liquidators or trustees * * *." (Ill. Rev. Stat. 1979, ch. 32, par. 850, now Ill. Rev. Stat. 1983, ch. 17, par. 3193.) In a provision analogous to 12 U.S.C. § 1464(d)(6)(A) (1976), section 7-12 of the Act expressly authorizes a challenge to the Commissioner's custodial action. Section 7-12 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." Ill. Rev. Stat. 1979, ch. 32, par. 852, now Ill. Rev. Stat. 1983, ch. 17, par. 3195.

The powers granted to the Federal receiver, pursuant to the Federal regulation, and the Commissioner pursuant to section 7-10 of the Act are merely the administrative powers necessary for the receiver to conduct the business operations of the seized institution. The bestowal of such powers does not deprive the seized institution of its statutory right to challenge the Commissioner's original take-over. The clear language of the statute indicates otherwise. Thus, by bringing its State action pursuant to section 7-12 of the Act, Telegraph was merely exercising its statutory right to judicial review of the Commissioner's actions. Furthermore, as Telegraph correctly observes, this court has previously stated "that if the legislature did not accord the right to obtain judicial review and control of the [Commissioner's] conduct the Savings and Loan Act would be constitutionally suspect. [Citations.]" Mensik v. Smith (1960), 18 Ill.2d 572, 586.

The Commissioner further argues that the resolution of Telegraph's claims in Federal court, under 12 U.S.C. ยง 1464(d)(6)(A) (1976), operates as a bar to the State action. Applying the doctrine of collateral estoppel, the Commissioner argues that the findings of fact made by the Federal court, pursuant to Telegraph's attempt to remove the FSLIC as receiver, demonstrate that his actions were reasonable. As such, Telegraph is estopped from attacking that conduct. The resolution of ...


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