FDIC v. Black ( 1995 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
NO. 95-40207
_______________________
IN RE: FEDERAL DEPOSIT INSURANCE CORPORATION,
Petitioner.
______________________________________________________________________________
Petition for Writ of Mandamus to the United States
District Court for the Southern District of Texas
______________________________________________________________________________
_________________________
NO. 95-40230
_________________________
UNITED STATES OF AMERICA,
Plaintiff,
versus
11,950 ACRES OF LAND, MORE OR LESS, LOCATED IN CAMERON COUNTY,
TEXAS,
Defendant,
FIRST HEIGHTS BANK,
Defendant-Counter Claimant,
STATE OF TEXAS; CAMERON COUNTY TAX ASSESSOR-COLLECTOR,
Defendants,
and
PACIFIC UNION COMPANY,
Defendant-Appellee.
***********************************
POINT ISABEL INDEPENDENT SCHOOL DISTRICT,
Cross Claimants-Appellees,
versus
FEDERAL DEPOSIT INSURANCE CORPORATION, As Manager of the
FSLIC Resolution Fund (FDIC),
Cross Defendant-Appellant.
***********************************
JOE G. SANDERS,
Trustee,
KATHY GRADY, C. L. BALLARD, PLAYA DEL RIO INC., KMG ENTERPRISES,
Defendants,
and
PACIFIC UNION COMPANY,
Cross Defendant-Appellee.
________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
________________________________________________________________
(July 7, 1995)
Before JOLLY and BENAVIDES, Circuit Judges, and FITZWATER, District Judge.*
FITZWATER, District Judge:
This petition for a writ of mandamus challenges an order of a magistrate judge declining to
quash notices of deposition issued to three members of the Board of Directors of the Federal Deposit
Insurance Corporation ("FDIC"). The question presented is whether the magistrate judge clearly
abused his discretion by permitting the depositions in the absence of findings of, and of a basis to find,
exceptional circumstances. We hold that he did, and therefore grant the petition.
I
Petitioner FDIC seeks relief from an order of a magistrate judge1 in a condemnation action
filed by plaintiff United States of America ("Unit ed States") in the Brownsville Division of the
Southern District of Texas (the "Brownsville Action"). The United States sues to condemn several
thousand acres of land located at the southernmost tip of Texas along the Gulf Coast and the Rio
*
District Judge of the Northern District of Texas, sitting by designation.
1
The parties have consented to try the lawsuit before the magistrate judge. Therefore, there was
no need for the FDIC first to seek review of the order from a district judge.
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Grande River, known as Playa del Rio. We are not strangers to litigation regarding Playa del Rio,
which we have previously characterized as "an environmentally sensitive tract of land in South
Texas." See Sierra Club v. FDIC, 992 F.2d 545, 547 (5th Cir. 1993). Although we address in this
petition a ruling in the Brownsville Action, the animating force for the instant dispute is related
litigation pending in the Houston Division of the Southern District of Texas (the "Houston Action").
The Houston Action pertains to the validity and enforceability of a 1992 agreement to sell Playa del
Rio to defendant-respondent Pacific Union Company ("Pacific Union"). In order to understand the
relevant background facts as well as the question we decide, it is necessary that we recount some of
the prior history of this contemplated sale, and of the Sierra Club litigation, and that we discuss the
Houston Action.
In 1988 First Heights Savings Bank, fsb ("First Heights") and the Federal Savings and Loan
Insurance Corporation ("FSLIC") entered into a transaction whereby First Heights acquired the
assets--including Playa del Rio--of various failed thrift institutions.2 As part of the arrangement
between First Heights and the FSLIC, the parties executed an Assistance Agreement that entitled
First Heights to reimbursement for losses on covered assets. The loss protection conferred by the
Agreement obligated First Heights to procure the FSLIC's approval prior to the sale of a covered
asset. The Agreement also gave the FSLIC the right in its discretion to direct the transfer of a
covered asset to anyone whom the FSLIC specified. The FDIC became Manager of the FSLIC
Resolution Fund upon passage of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989, Pub. L. No. 101-73, 1989 U.S.C.C.A.N. (103 Stat.) 183 ("FIRREA"). FIRREA abolished
the FSLIC, and the FDIC retained most of the FSLIC's liabilities. The FDIC is a party to the Houston
Action in its capacity as Manager of the FSLIC Resolution Fund. The FDIC is not a party to the
Brownsville Action.
2
Because the particulars are unnecessary to our decision, we do not elaborate upon the details of
the transactions by which First Heights became the owner of Playa del Rio. These may be gleaned
from Sierra Club, 992 F.2d at 547.
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On August 6, 1992 First Heights and Pacific Union entered into a contract for the sale of
Playa del Rio. First Heights sought the FDIC's consent, and submitted a request for loss assistance,
because the sale price of $5.8 million was less than Playa del Rio's adjusted book value of $7.4
million. In September 1992 the FDIC approved First Heights' request.
In January 1993, however, three parties, including the Sierra Club, sued the FDIC to require
it to withdraw its approval of the sale, and to enjoin it from consenting to the sale until the FDIC had
determined the environmental impact in accordance with the National Environmental Policy Act.
Sierra Club, 992 F.2d at 548.3 The district court issued a mandatory preliminary injunction ordering
the FDIC to "withdraw its approval and withhold future approval for Heights' sale of the Playa del
Rio property, pending consideration by the FDIC Board of Directors of the issues surrounding the
FDIC's approval or rescission of the Playa del Rio sale request." Id. (quoting district court order).
The FDIC appealed the injunction. While the appeal was pending, the FDIC on February 5,
1993 notified First Heights that it had rescinded its approval of the sale to Pacific Union. On June
8, 1993 we vacated the preliminary injunction and remanded the case for further proceedings, because
plaintiffs had not yet shown they were entitled to injunctive relief, and the district court had failed to
comply with the requirement of Fed. R. Civ. P. 52 that it enter findings of fact and conclusions of law.
Id. at 552.
On June 9, 1993 the FDIC's Board of Directors formally approved a staff proposal that the
FDIC Division of Resolutions be permitted to exercise its discretion under the Assistance Agreement
to direct that First Heights sell Playa del Rio to the United States Fish & Wildlife Service for $5.4
million.4 The Board adopted a resolution that recited inter alia that the FDIC had earlier approved
the sale to Pacific Union for $5.8 million, but noted the Sierra Club litigation and the district court's
3
We observed in Sierra Club that plaintiffs' apparent goal was to prevent the sale to Pacific Union
"so that an environmentally conscious entity . . . can purchase the land." Id.4
We filed our opinion in Sierra Club on June 8, 1993, one day prior to the Board's action. Sierra
Club, 992 F.2d 545.
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injunction. The resolution explained that Playa del Rio included substantial wetlands and represented
a valuable natural resource and critical habitat to several endangered species. It also pointed out that
the Coastal Barrier Improvement Act of 1990 authorized the Fish & Wildlife Service to acquire the
property from First Heights. The Board found that the sale would permit the recovery of significant
economic value for Playa del Rio, and should resolve the issues presented by the Sierra Club
litigation.
In July 1993, prior to the FDIC's directing First Heights to sell Playa del Rio to the Fish &
Wildlife Service, First Heights resubmitted to the FDIC a request to approve the sale to Pacific
Union, and for loss assistance. In an August 24, 1993 letter, the FDIC notified First Heights that it
had disapproved the request. First Heights then terminated the sale contract.
The next day, on August 25, 1993, First Heights and the FDIC initiated the Houston Action,
seeking a judgment declaring on various grounds that the proposed sale of Playa del Rio from First
Heights to Pacific Union was of no force and effect. Pacific Union has counterclaimed, contending
that First Heights and the FDIC are liable for violating the Fifth Amendment by taking property
without just compensation; seeking review of the FDIC's decisions pursuant to the Administrative
Procedure Act ("APA"), 5 U.S.C. § 701 et seq.; and alleging a violation of Pacific Union's right to
substantive due process.
Pacific Union complains that it is an unjustly-rejected suitor for Playa del Rio who has
expended in excess of $1.75 million to close the purchase. It contends that discovery in the
Brownsville and Houston Actions has revealed t hat First Heights declined to complete the sale to
Pacific Union because another agency of the United States government wanted the property. Pacific
Union asserts that after the parties executed the sale contract, and following FDIC approval,
Secretary of the Interior Bruce Babbitt ("Secretary Babbitt") requested of FDIC Acting Chairman
Andrew Hove ("Chairman Hove") that FDIC representatives meet with Fish & Wildlife Service
personnel. Secretary Babbitt indicated that the Fish & Wildlife Service was interested in adding Playa
del Rio to the lower Rio Grande Valley National Wildlife Refuge Complex. Pacific Union avers that
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former Texas Governor Ann Richards and Vice President Al Gore supported Secretary Babbitt's
efforts. Pacific Union maintains that without its knowledge, representatives of the Fish & Wildlife
Service and the FDIC met in April, resulting in a plan to sell Playa del Rio to the Fish & Wildlife
Service or its designee. The parties discussed transferring Playa del Rio to the Fish & Wildlife
Service through a conduit, The Nature Conservancy ("TNC"). The FDIC and TNC could not agree
on an amount necessary to indemnify TNC from anticipated claims by Pacific Union that TNC had
interfered with the First Heights-Pacific Union sale contract. Pacific Union contends the Houston
Action is the result of the FDIC and First Heights' realization that the First Heights-Pacific Union sale
contract was an impediment to the Fish & Wildlife Service's plan to acquire Playa del Rio.
Pacific Union asserts that it submitted interrogatories in the Houston Action concerning the
identities of fact witnesses and persons responsible for making the decision concerning the FDIC's
August 24, 1993 disapproval of First Heights' request to approve the sale to Pacific Union and
request for loss assistance. It points out that the parties agreed that this discovery was also equally
usable in the Brownsville Action. The FDIC identified three persons in response to the
interrogatories: Acting Chairman Hove; Comptroller of the Currency Eugene A. Ludwig
("Comptroller Ludwig"); and Acting Director of the Office of Thrift Supervision Jonathan L. Fiechter
("Director Fiechter"). Pacific Union contends that aside from the significance of the deponents'
testimony with respect to the claims against the FDIC, the depositions will be important to establish
civil conspiracy against First Heights.
On December 8, 1993 the United States commenced the instant Brownsville Action, in which
it seeks to condemn 11,500 acres of Playa del Rio. The trial court has bifurcated the trial of the title
and value issues, and the first phase is currently set to be tried in August 1995.
In the Houston Action, the parties have engaged in substantial discovery. Pacific Union has
deposed six current or former FDIC employees, including Kevin Stein ("Director Stein"), the
Associate Director of the FDIC's Division of Resolutions, who was principally responsible for
managing the FSLIC Resolution Fund. Also deposed were Michael D. Solomon, who was Acting
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Assistant General Counsel and served as Director Stein's primary legal advisor; Leslie R. Crawford,
a staff attorney who was involved in advising Director Stein regarding Playa del Rio; James A.
Weaver, Dallas Regional Manager of the FDIC's Division of Resolutions; Ken Sheffield, a Senior
Case Manager on the Division staff; and Benjamin R. Idziak, formerly an attorney in the FDIC's
Dallas office.
On March 2, 1995 Pacific Union served deposition notices directed to three members of the
FDIC's Board of Directors: Chairman Hove,5 Comptroller Ludwig, and Director Fiechter. The
notices bore the case capt ion of both the Brownsville and Houston Actions, and stated that the
depositions would take place in Dallas, Texas on March 13 and 14, 1995.
On March 6, 1995 the FDIC moved in both the Brownsville and Houston Actions to quash
the notices. Pacific Union contended the depositions were appropriate because the FDIC had
identified these individuals in response to interrogatories as persons responsible for, or principally
involved in, the FDIC's disapproval of the sale to Pacific Union. The magistrate judge in the Houston
Action granted the relief,6 but the magistrate judge in the Brownsville Action denied the FDIC's
motion. The FDIC appealed the March 6, 1995 order of the Brownsville magistrate judge to this
court, and separately filed the instant petition for a writ of mandamus. A panel of this court stayed
the order, and expedited the appeal.
II
"We are to issue a writ of mandamus only `to remedy a clear usurpation of power or abuse
of discretion' when `no other adequate means of obtaining relief is available.'" In re Fibreboard Corp.,
893 F.2d 706, 707 (5th Cir. 1990) (quoting In re Paradyne Corp., 803 F.2d 604, 612 (11th Cir.
1986)).7 "An abuse of discretion exists only when there is [a] definite and firm conviction that the
5
Chairman Hove is currently Vice Chairman of the FDIC.
6
The Houston magistrate judge directed Pacific Union to submit proposed questions in writing,
following which the judge would give the issue further consideration.
7
We hold that the FDIC has no other adequate means of obtaining relief. We agree with the
Eleventh Circuit that requiring a government official "to incur a contempt sanction would have
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court below committed clear error of judgment in the conclusion it reached upon a weighing of the
relevant factors." Conkling v. Turner, 18 F.3d 1285, 1293 (5th Cir. 1994) (quoting Hoffman v.
Merrell Dow Pharmaceuticals, Inc., (In re Bendectin Litig.), 857 F.2d 290, 307 (6th Cir. 1988), cert.
denied, 488 U.S. 1006 (1989)) (internal quotations omitted). The term abuse of discretion "does not
imply intentional wrong or bad faith, or misconduct, nor any reflection on the judge." United States
v. Walker, 772 F.2d 1172, 1176 n.9 (5th Cir. 1985) (quoting Black's Law Dictionary (5th ed. 1979
at 10)).
It is a settled rule in this circuit that "exceptional circumstances must exist before the
involuntary depositions of high agency officials are permitted." In re Office of Inspector General, 933
F.2d 276, 278 (5th Cir. 1991) (per curiam) (citing EEOC v. K-Mart, 694 F.2d 1055, 1067-68 (6th
Cir. 1982)). "[T]op executive department officials should not, absent extraordinary circumstances,
be called to testify regarding t heir reasons for taking official actions." Id. (quoting Simplex Time
Recorder Co. v. Secretary of Labor, 766 F.2d 575, 586 (D.C. Cir. 1985)). "High ranking government
officials have greater duties and time constraints than other witnesses." In re United States, 985 F.2d
510, 512 (11th Cir.) (per curiam), cert. denied, ___ U.S. ___, 114 S.Ct. 545 (1993). "[T]he Supreme
Court has indicated that the practice of calling high officials as witnesses should be discouraged."
Id. (citing United States v. Morgan, 313 U.S. 409 (1941)).
III
We hold that the magistrate judge clearly abused his discretion by declining to quash the
deposition notices issued to the three FDIC Directors.
A
serious repercussions for the relationship between two coequal branches of government." In re United
States, 985 F.2d 510, 513 (11th Cir.) (per curiam) (granting writ of mandamus), cert. denied, ___
U.S. ___, 114 S.Ct. 545 (1993). Moreover, although the FDIC also brings an interlocutory appeal
of the magistrate judge's order, seeking to invoke appellate jurisdiction on the basis of Cates v. LTV
Aerospace Corp., 480 F.2d 620 (5th Cir. 1973), Pacific Union maintains that Cates does not confer
jurisdiction, and moves to dismiss the appeal. We do not think Pacific Union can at once move to
dismiss the appeal and urge that the FDIC has an adequate means of obtaining relief.
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As a threshold matter, we observe that the magistrate judge apparently made no attempt to
find exceptional circumstances before rejecting the FDIC's motion to quash. During the course of
a previously-scheduled status conference with counsel, the judge addressed the merits of the FDIC's
quashal motion. The hearing record reflects that he considered brief arguments from counsel;
assumed that some areas of inquiry might be privileged and that objections based upon privilege could
be lodged during the course of the depositions; and concluded that the depositions should be allowed
to go forward. Except with respect to the scheduling of the depositions,8 it does not appear that the
magistrate judge considered the high-ranking status of the deponents, the potential burden that the
depositions would impose upon them, or the substantive reasons for taking the depositions. The
judge's order denied the motion without assigning reasons. After rejecting the motion to quash, and
in denying the FDIC's motion for a stay pending appeal, the magistrate judge offered some rationale
for his decision. He held inter alia that Pacific Union was entitled to depose the three Directors
because (1) the FDIC is a party to the Houston Action, and that action involves issues concerning
Playa del Rio, which is the center of the Brownsville Action; (2) Pacific Union has a motion pending
to add the FDIC as a party to the Brownsville Action and there is a motion pending in the Houston
Action to abate in favor of the Brownsville Action; (3) in the Houston Action the FDIC has indicated
in interrogatory answers that the three Directors made certain decisions concerning the sale of the
property, and those matters are relevant to the dispute; (4) the parties have stipulated to the use of
the Houston Action interrogatories in the Brownsville Action; and (5) Pacific Union has represented
that it has been unable to obtain the information through other means. These findings do not
demonstrate, however, that the judge specifically considered and found that exceptional
circumstances were present.
B
8
The magistrate judge provided in his order t hat, "Considering the high-level governmental
positions held by these deponents, the Court admonishes the parties to cooperate as to the scheduling
of these depositions."
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Moreover, we are unable to discern from the record before us a basis on which the judge
could have found the existence of exceptional circumstances.
Pacific Union contends, on essentially the following line of reasoning, that the depositions
should be allowed to go forward. Chairman Hove was the author and recipient of correspondence
that reveals the development and implementation of a plan and agreement to sell Playa del Rio to the
Fish & Wildlife Service rather than to Pacific Union. The FDIC's decision is the subject of Pacific
Union's counterclaim in the Houston Action and cross-claim in the Brownsville Action. The FDIC
is seeking in the Houston Action a declaration that the decision to sell the land to the Fish & Wildlife
Service rather than to Pacific Union was proper and that the First Heights-Pacific Union contract is
a nullity; therefore, Pacific Union should be permitted to depose the decision-makers in order to
ascertain the facts on which the determination was based and the standard applied in the process. The
FDIC made a decision that directly affected Pacific Union's property rights and then filed a lawsuit
against Pacific Union seeking a judicial determination that its action terminated those rights. There
is no other source of evidence than the testimony of three deponents in question, especially since the
FDIC designated only these individuals as being t he persons responsible for making the decision
regarding the FDIC's August 24, 1993 disapproval of First Heights' request. The June 9, 1993 FDIC
resolution is an inadequate substitute for a full administrative agency record. The seriousness of the
litigation, and of allegations of misconduct (including conspiracy and cover-up) by government
agencies and officials who grossly abused their power to deprive Pacific Union of its contract rights,
and the government's role as a party-plaintiff, favor disclosure.
We disagree t hat Pacific Union has made the strong showing necessary for a finding of
exceptional circumstances. Pacific Union disclaims any intention to "suggest that senior government
officials may be deposed in every case in which the government is a party." (Footnote omitted). Yet
the reasoning Pacific Union advances would risk eviscerating well-settled principles of administrative
law. If countenanced, this rationale would justify deposing high-level government officers in a
plethora of cases in order to probe their decision-making processes and the reasons for their
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decisions. Agency leaders often send and receive correspondence relative to their actions. Their
official conduct frequently affects--sometimes adversely--the property rights of private parties. This
does not of itself subject them to the burdens of litigation discovery.
Nor is t he present case distinguished by the fact that the FDIC initiated the Houston
declaratory judgment action. As the FDIC correctly points out, the order before us for review was
entered in the Brownsville Action, which the FDIC did not commence and to which it is not a party.
It is not sufficient for Pacific Union to rely upon the joint nature of the discovery undertaken in the
two cases, because in the Houston Action--to which the FDIC is a party--the magistrate judge
quashed the depositions.
But even overlooking this impediment to Pacific Union's position, we reject the proposition
that an administrative agency subjects its high-level officials to discovery when it brings a declaratory
judgment action intended to give effect to an agency decision. Agency actions are usually reviewable,
if at all,9 pursuant to the APA. It is recognized that courts reviewing these decisions normally "may
not require the agency officials who participated in that decision to give testimony explaining their
action unless there has been a strong showing of bad faith or improper behavior." Bank of Commerce
v. City National Bank, 484 F.2d 284, 288 (5th Cir. 1973) (citing Citizens to Preserve Overton Park,
Inc. v. Volpe, 401 U.S. 402, 420 (1971)), cert. denied, 416 U.S. 905 (1974). We discern nothing
in the character of a declaratory judgment action of the type brought here that warrants altering this
rule, and permitting discovery from the agency's high-level officials in which they are obligated to
explain their decisions. Absent a strong showing of bad faith or improper behavior, senior agency
decision-makers do not subject themselves to discovery when the agency seeks a declaratory
judgment as to the validity of its action. By adopting such a rule, courts could unintentionally place
government agencies in the untenable position of relinquishing otherwise available avenues of relief
in order to preserve the application of settled rules that govern judicial review of agency decisions.
9
The FDIC contends it decisions with respect to Playa del Rio are unreviewable. We need not
decide this question.
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Nor do we see in the present record a strong showing of bad faith or improper behavior,
notwithstanding Pacific Union's allegations of misconduct (including conspiracy and cover-up) and
assertions of gross abuse of power by government agencies and officials. The present state of the
evidence reflects that, pursuant to its authority under the Assistance Agreement to approve the sale
of covered assets and to direct First Heights to transfer such assets to anyone whom the FDIC
specified, the FDIC retained discretion with regard to the dispo sition of Playa del Rio. Absent a
showing of contrary provisions of law or contract, and none has been made here, the fact that agency
heads considered the preferences (even political ones) of other government officials concerning how
this discretion should be exercised does not establish the required degree of bad faith or improper
behavior.
We note that Pacific Union also relies in part upon the FDIC's response to Pacific Union's
interrogatory No. 7 to urge that the three Directors are proper deponents. In that interrogatory,
Pacific Union asked the FDIC to "[i]dentify each and every committee or board, and its members, that
made, was responsible for, or was principally involved with any determination or decision concerning
the August 24, 1993 disapproval" of First Heights' July 1993 second request to approve the sale of
Playa del Rio to Pacific Union and request for loss assistance. The FDIC has demonstrated, however,
that although interrogatory No. 7 and an at tendant definition of terms required that it identify the
Directors, the August 24 decision was in fact made by Director Stein of the FDIC's Division of
Resolutions, whom Pacific Union has already deposed. We think it will be the rarest of cases--and
the present action is not one--in which exceptional circumstances can be shown where the testimony
is available from an alternate witness. See In re United States, 985 F.2d at 512 (citing as weighing
against finding of extraordinary circumstances, fact that testimony was available from alternate
witnesses).
* * *
The magistrate judge denied the FDIC's motion to quash depositions without first determining
that there were exceptional circumstances that justified this form of discovery from three senior
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officials of the FDIC. This was a clear abuse of discretion. Moreover, from our review of the record,
we are unable to discern any exceptional circumstances that would have warranted allowing the
depositions to take place. Accordingly, we grant the petition and order the magistrate judge to vacate
the March 6, 1995 order and grant the FDIC's motion to quash depositions.10
PETITION GRANTED.
10
We dismiss the FDIC's appeal as moot.
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