Landmark Land Co., Inc. v. Office of Thrift Supervision ( 1993 )

                             FOR THE FIFTH CIRCUIT
                                  No. 91-3930
               Appeal from the United States District Court
                   for the Eastern District of Louisiana
                               (April 29, 1993)
    Before WILLIAMS, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.
    JERRE S. WILLIAMS, Circuit Judge:
         The Office of Thrift Supervision (OTS) appeals from the
    district court's granting of injunctive relief to both Landmark
    Land Company, Inc. (Landmark) and some of its directors, the
    individual plaintiffs.    The OTS had issued a temporary cease-and-
    desist order against Landmark and the other plaintiffs.       The order
    prohibited them from dissipating the assets of the subsidiaries of
    a savings association and also froze their personal assets pending
    the resolution of the underlying administrative cease-and-desist
    proceeding.         The    district    court's     injunction       suspended        the
    temporary order. On appeal, the OTS argues that the district court
    erred substantively and procedurally in granting the preliminary
    injunction.    We find that the district court erred procedurally,
    and we vacate and remand the injunction for reconsideration by the
    district court.
                          I.    FACTS AND PRIOR PROCEEDINGS
         Plaintiff-Appellees Gerald G. Barton, Bernard G. Ille, William
    W. Vaughan, III, and Joe W. Walser, Jr. were the directors of
    plaintiff-appellee         Landmark     Land     Company,    Inc.,       a   Delaware
    corporation and holding company. Since the mid-1970s, Landmark has
    developed and operated several golf courses and resort communities.
    In 1982 Landmark acquired a financially troubled thrift in New
    Orleans, Louisiana and renamed it Landmark Savings Bank, S.S.B. (a
    savings bank chartered by the State of Louisiana).                            In 1986
    Landmark    Savings       Bank    acquired     another   thrift,      to     which   it
    transferred its assets in 1989. The resulting thrift was named Oak
    Tree Savings Bank, S.S.B. (Old Oak Tree).
         Old Oak Tree owned Clock Tower Place Investments, Ltd. (Clock
    Tower), a     first-tier         subsidiary.     Clock     Tower    in     turn   owned
    numerous second-tier subsidiaries, including Landmark Land Company
    of California, Inc.; Landmark Land Company of Carolina, Inc.;
    Landmark Land Company of Oklahoma, Inc.; Landmark Land Company of
    Florida,    Inc.;    and    Landmark    Land     Company    of     Louisiana,     Inc.
    (collectively, the subsidiaries).                Barton, Ille, Vaughan, and
    Walser served as directors of both Landmark and Old Oak Tree.
    Barton,    Vaughan,   and   Walser      also    served     as   directors   and/or
    officers of various ones of the subsidiaries.
         In August 1989, Congress passed the Financial Institutions
    Reform, Recovery, and Enforcement Act of 1989 (FIRREA).1                          Of
    critical    importance      was   the        change   in    the    capitalization
    requirements by FIRREA so that Landmark could no longer use its
    real estate holdings to capitalize Old Oak Tree. Although Landmark
    sought to sell the golf courses and resort properties held by its
    subsidiaries,    it   was    unsuccessful.            Between     April   1990   and
    September 1991, Landmark entered into two contracts to sell the
    subsidiaries' real estate holdings.             Both contracts, however, fell
    through.    The OTS refused to approve the first, and after the OTS
    stepped in to renegotiate the second, the buyer withdrew the offer.
         Meanwhile, Old Oak Tree was incurring significant losses in
    1989, 1990, and 1991.         After failing to meet minimum capital
    requirements in July 1990, Old Oak Tree submitted a capital plan
    that OTS rejected.       Then, in January 1991, Old Oak Tree and OTS
    executed a Consent Agreement that imposed certain restrictions and
    requirements on the management of Old Oak Tree.                     Old Oak Tree
           FIRREA abolished both the Federal Home Loan Bank Board and
    the Federal Savings and Loan Insurance Corporation, and it created
    the Office of Thrift Supervision (OTS) to oversee and regulate
    savings associations.
    agreed among other things to obtain prior written approval from OTS
    before entering into “any material transaction.”
           After the second sales contract fell through, the boards of
    directors of the six subsidiaries met in October 1991 to consider
    their options. Barton, Walser, and Vaughan were present at several
    of these meetings, but chose to abstain from voting.                         The boards
    voted to file Chapter 11 bankruptcy, and such a filing occurred on
    October 11, 1991, in the United States Bankruptcy Court for the
    District of South Carolina. Each subsidiary then obtained from the
    South Carolina bankruptcy court a temporary restraining order,
    which    prevented    Old        Oak    Tree    and    the    OTS     from   exercising
    shareholder rights to change management to enable withdrawal of the
    bankruptcy petitions.
           The   OTS   responded       on   October       13,   1991,    by    invoking   its
    statutory powers pursuant to 12 U.S.C. § 1818 to commence a cease-
    and-desist proceeding.           The OTS has the authority to pursue cease-
    and-desist proceedings against an institution and any institution-
    affiliated parties (such as directors and officers) when it decides
    that they are engaging in unsound business practices, violating the
    law,    or   breaching      an     agreement      with      the     OTS.     12   U.S.C.
    § 1818(b)(1).       Such a proceeding was commenced in this case by
    filing   a   Notice   of     Charges      setting       out   the     allegations     and
    scheduling an administrative hearing.                  The OTS then appointed the
    Resolution Trust Corporation (RTC) as receiver for Old Oak Tree and
    chartered Oak Tree Federal Savings Bank of New Orleans, Louisiana
    (New Oak Tree).
         The Notice of Charges filed against the plaintiffs alleged
    that the individual plaintiffs had breached their fiduciary duties
    by acting to file the bankruptcy petitions and by failing to inform
    the OTS either of the impending bankruptcy or of their conflict of
    interest.   The   Notice    of   Charges    further    asserted     that   the
    plaintiffs had violated the Consent Agreement, and the OTS imposed
    civil monetary penalties:        one million dollars on each of the
    individual directors, and on Landmark $500,000 plus an additional
    $500,000 for   each   day   beyond   October   13     that   the   individual
    plaintiffs failed to withdraw the bankruptcy petitions.
         The OTS undertook to act under its authority to issue broad
    temporary cease-and-desist orders when it determines that the
    unsound practice or violation is “likely to cause insolvency or
    significant dissipation of assets.”        12 U.S.C. § 1818(c)(1).         Such
    a temporary cease-and-desist order may be entered without a hearing
    and may require affirmative action.        Parker v. Ryan, 
    959 F.2d 579
    581-82 (5th Cir. 1992).     A temporary order becomes effective upon
    service, but the institution receiving the order has ten days
    within which it can seek judicial review.        12 U.S.C. § 1818(c)(1)
    and (2).
         The OTS issued the Temporary Order To Cease and Desist (the
    Temporary    C&D),    and     it   drastically      limited    the    plaintiffs'
    authority and froze the personal assets both of the plaintiffs and
    of their family members.             The plaintiffs timely applied to the
    district court in New Orleans to set aside, limit, or suspend the
    Temporary C&D pursuant to 12 U.S.C. § 1818(c)(2).                    Although the
    district    court    denied    the    plaintiffs'    initial    request    for   a
    temporary restraining order, it scheduled a preliminary injunction
    hearing for November 1, 1991.            Before the hearing, however, the
    South Carolina bankruptcy court issued findings and enjoined the
    RTC from exercising any shareholder rights over the subsidiaries
    and their management.         On November 1, the Louisiana district court
    took notice of the bankruptcy court's findings, suspended the
    Temporary    C&D,    and    sua      sponte   transferred      the    plaintiffs'
    application to the South Carolina bankruptcy court.
         The    RTC   appealed     the    South   Carolina    bankruptcy      court's
    injunction, and the OTS appealed the Louisiana district court's
    transfer.   On November 26, 1991, a panel of this court held that it
    was error to transfer the application to South Carolina and denied
    the OTS's motion to stay the preliminary injunction pending the
    appeal of that order.         Landmark Land Co., Inc. v. Office of Thrift
    948 F.2d 910
     (5th Cir. 1991).                The South Carolina
    bankruptcy court's injunction was subsequently reversed by the U.S.
    Court of Appeals for the Fourth Circuit.                  Thus, the RTC was
    authorized to assert its ownership rights over the subsidiaries.
    In re Landmark Land Co. of Okla, Inc., 
    973 F.2d 283
     (4th Cir.
    1992).    At the end of 1992, the RTC was continuing to operate the
    subsidiaries under the jurisdiction of the bankruptcy court.
           Over a year has passed since the OTS filed the Notice of
    Charges and commenced the underlying administrative action, and
    that action has not yet concluded.         The Louisiana district court's
    injunction suspending the Temporary C&D, however, remains in effect
    and is the subject of this timely appeal by the OTS.
                                II.   DISCUSSION
           To obtain a preliminary injunction, the plaintiffs had to show
    (1) that there was a substantial likelihood they would succeed on
    the merits, (2) that they faced a substantial threat of irreparable
    harm   without   the   injunction,   (3)    that   the   threatened   injury
    exceeded any harm that would flow from the injunction, and (4) that
    the injunction would not undermine the public interest.               United
    Offshore Co. v. Southern Deepwater Pipeline Co., 
    899 F.2d 405
    , 407-
    08 (5th 1990).    Although the district court must apply a stringent
    standard, our review is limited generally to considering whether
    the district court abused its discretion.            Doran v. Salem Inn,
    422 U.S. 922
    , 931-32, 
    95 S. Ct. 2561
    , 2568, 
    45 L. Ed. 2d 648
    (1975).    We review findings of fact for clear error.         FED. R. CIV.
    P. 52(a).    We review de novo the legal questions decided by the
    district court.    United Offshore Co., 899 F.2d at 407.
         The    parties   have   argued    extensively          the    merits    of    the
    preliminary injunction.        Our review, however, does not reach the
    merits   because   the   district     court    did    not    reach     them.       The
    plaintiffs had filed their complaint and an application for a
    temporary    restraining     order,   which    they     supplemented           with   a
    memorandum of law for the preliminary injunction hearing.                      The OTS
    had filed its response to the application.                   At the preliminary
    injunction    hearing,   the     district     court    had    before      it     those
    documents and the findings of the bankruptcy court.                    The district
    court, however, did not consider the four inquiries required for a
    preliminary injunction.      Instead, the district court was concerned
    about the concurrent bankruptcy proceeding in South Carolina, and
    it decided to transfer the action to South Carolina “in the
    interest of judicial economy.”          By its injunction, the district
    court suspended the operation of the Temporary C&D until the
    bankruptcy court in South Carolina could take up the matter.
    Although we vacated the transfer as improper, the Temporary C&D
    remains suspended pending our decision on this appeal.
         The district court did not consider the contentions of the
    parties, nor did it take further evidence to determine whether a
    preliminary    injunction    was    warranted.        We     conclude       that   the
    district court abused its discretion by failing to apply the four
    criteria     for   preliminary     injunctions        when        it   granted     the
    suspension.    The plaintiffs ask us to affirm the injunction, and
    the OTS argues that we should reverse and render.                  Neither action,
    however, is appropriate.       We vacate the injunction and remand the
    case to the district court.          The district court must determine
    whether the plaintiffs can make a proper showing and are entitled
    to suspension of the Temporary C&D.
         In addition to failing to apply the proper criteria, the
    district court did not comply with Federal Rules of Civil Procedure
    52(a) and 65(d). Rule 52(a) mandates that the district court issue
    findings   of   fact    and   conclusions       of   law   when   it   grants    an
    injunction. Rule 65(d) requires the district court to set forth in
    specific terms    its    reasons    for   issuing      the   injunction.        The
    district court stated generally its reasons for suspending the
    Temporary C&D and took notice of the findings of the bankruptcy
    court, but failed to issue specific findings.
         The   plaintiffs     argue    that   the    South     Carolina    bankruptcy
    court's findings justify the suspension of the Temporary C&D and
    have preclusive effect in the instant case.                They assert that the
    OTS is barred from relitigating the findings because they are based
    upon issues that (1) are identical to those involved in the prior
    litigation, (2) have been actually litigated, and (3) have been “a
    critical and necessary part of the judgment in the earlier action.”
    Terrell v. DeConna, 
    877 F.2d 1267
    , 1270 (5th Cir. 1989).
         This argument fails for two reasons.             First, issue preclusion
    does not apply.    The question before the court in South Carolina
    was whether it should enjoin the RTC from exercising shareholder
    rights over the subsidiaries and from denying Landmark and its
    officers access to books and records.                The Temporary C&D was not
    before the bankruptcy court and has little to do with the RTC's
    rights as receiver.         Additionally, of course, the Fourth Circuit
    reversed the bankruptcy court's injunction.                  As the United States
    Supreme Court has noted, “[E]ven if the second suit is for a
    different cause of action, the right, question, or fact once so
    determined must, as between the same parties or their privies, be
    taken as conclusively established, so long as the judgment in the
    first suit remains unmodified.”            Southern Pac. R.R. v. United
    168 U.S. 1
    , 48-49, 
    18 S. Ct. 18
    , 27, 
    42 L. Ed. 355
    (see 18 WRIGHT    ET AL.,   FEDERAL PRACTICE   AND   PROCEDURE § 4416 (1981)).
    Although the first suit was as yet unmodified when the district
    court suspended the Temporary C&D, it has since been reversed, and
    the original findings clearly can have no preclusive effect.2
         The    second   reason     the   plaintiffs'        contention       fails    is
    exemplified by Seattle-First National Bank v. Manges, 
    900 F.2d 795
    799-800 (5th Cir. 1990).         In that case, the district court had
    adopted    the   magistrate's    findings      of     fact    and   had   issued   a
    preliminary injunction.        Although we held that the district court
             The OTS also argues that issue preclusion is inapplicable
    because there is no privity between the parties. The plaintiffs
    counter that decisions rendered against one federal agency have
    preclusive effect against another, citing 18 WRIGHT ET AL., FEDERAL
    PRACTICE AND PROCEDURE § 4458 (1981). In light of our determination
    above, we need not consider this contention.
    did not abuse its discretion in granting the injunction because the
    movant had made the proper showing, we nevertheless remanded the
    case to the district court so it could issue its own findings.
    More is required here since the district court merely took notice
    of the bankruptcy court's findings.          We also recognize that an
    appellate court can review a district court record in the absence
    of   findings   and   conclusions    as   long   as   (1)   the   record   is
    exceptionally clear and (2) remand would serve no useful purpose.
    White v. Carlucci, 
    862 F.2d 1209
    , 1210-11 n.1 (5th Cir. 1989).             In
    this case, however, we find that disputes in the record warrant
    remand.    Under Manges, we must remand the case to the district
    court for issuance of its own findings of fact and conclusions of
           Finally, an evidentiary hearing is necessary on remand only if
    the parties are disputing material facts.        Otherwise, a hearing on
    the basis of briefing and affidavits is sufficient.               Parker v.
    959 F.2d 579
    , 583 (5th Cir. 1992); FSLIC v. Dixon, 
    835 F.2d 554
    , 558 (5th Cir. 1987).     The record reveals several disputes of
    material fact that the district court must necessarily resolve in
    deciding whether to issue the injunction.         An evidentiary hearing
    thus is in order upon remand.
                               III.     CONCLUSION
           The district court did not consider whether the plaintiffs
    made the requisite showing to warrant suspension of the Temporary
    C&D.    The district court also did not issue its own findings of
    fact and conclusions of law.        We vacate the suspension of the
    Temporary C&D and remand to the district court for an evidentiary
    hearing    on   the   plaintiffs'   application   for   a   preliminary