Federal Deposit Insurance v. AmTrust Financial Corp. (In Re AmTrust Financial Corp.) , 694 F.3d 741 ( 2012 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 12a0332p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
Debtor. -
In re AMTRUST FINANCIAL CORPORATION,
_____________________________________ --
FEDERAL DEPOSIT INSURANCE CORPORATION, -
No. 11-3677
Appellant, ,>
-
-
v.
-
-
AMTRUST FINANCIAL CORPORATION,
Appellee. N
Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 1:10-cv-1298—Donald C. Nugent, District Judge.
Argued: May 31, 2012
Decided and Filed: September 14, 2012
Before: MARTIN and DAUGHTREY, Circuit Judges; MALONEY, District Judge.*
_________________
COUNSEL
ARGUED: Minodora D. Vancea, FEDERAL DEPOSIT INSURANCE
CORPORATION, Arlington, Virginia, for Appellant. Pierre H. Bergeron, SQUIRE
SANDERS & DEMPSEY (US) LLP, Cincinnati, Ohio, for Appellee. ON BRIEF:
Minodora D. Vancea, Michelle Ognibene, FEDERAL DEPOSIT INSURANCE
CORPORATION, Arlington, Virginia, for Appellant. Pierre H. Bergeron, Stephen D.
Lerner, Robert A. Amicone, II, SQUIRE, SANDERS & DEMPSEY (US) LLP,
Cincinnati, Ohio, Richard S. Gurbst, Philip M. Oliss, SQUIRE, SANDERS &
DEMPSEY (US) LLP, Cleveland, Ohio, for Appellee.
*
The Honorable Paul Lewis Maloney, Chief United States District Judge for the Western District
of Michigan, sitting by designation.
1
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 2
_________________
OPINION
_________________
PAUL L. MALONEY, Chief District Judge. When AmTrust Financial
Corporation (“AFC”) filed for bankruptcy in late 2009, the FDIC was appointed receiver
for AFC’s subsidiary, AmTrust Bank (“the Bank”). In that capacity, the FDIC sought
payment from AFC under 11 U.S.C. § 365(o), which requires that a party seeking
Chapter-11 bankruptcy fulfill “any commitment . . . to maintain the capital of an insured
depository institution.” The FDIC argued that AFC made such a commitment by
agreeing to entry of a cease-and-desist order requiring AFC’s board to “ensure that [the
Bank] complies” with the Bank’s own obligation to “have and maintain” capital ratios
of 7 percent (Tier 1) and 12 percent (total). The district court first denied the parties’
cross-motions for summary judgment, finding that the cease-and-desist order was
ambiguous, and then, after an advisory-jury trial, found that the order was not a capital-
maintenance commitment under section 365(o). The FDIC appeals both rulings.
For the reasons discussed below, we affirm the district court, both in its ruling
that the cease-and-desist order is ambiguous and in its ultimate finding that the order
does not contain a capital-maintenance commitment.
BACKGROUND
A. Summer – Fall 2008: Deteriorating Assets and Initial Remediation
Plans
During the events leading up to this suit, both AmTrust Bank and its parent and
holding company, Appellee AmTrust Financial Corporation, operated under the
regulation of the Office of Thrift Supervision (“OTS”). Before it was merged into other
federal agencies in late 2011, OTS served as the primary regulator for savings
associations and their holding companies. OTS was tasked with enforcing various
provisions of federal law, including the Federal Deposit Insurance Act, 12 U.S.C.
§§ 1811 et seq., and the Home Owner’s Loan Act, 12 U.S.C. §§ 1461 et seq. In doing
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 3
so, it was authorized to examine regulated entities and issue cease-and-desist orders
obligating them to stop unsafe or unsound practices and to take steps to fix any resulting
problems. See 12 U.S.C. §§ 1464(d)(1)(B)(I), 1464(d)(6), 1467a(b)(4), 1818(b)(1),
(b)(3) (2006) (amended 2010); 12 C.F.R. § 563.170 (2012).
Though the Bank’s troubles date further back, the facts relevant to this suit began
in June 2008, when OTS released the findings from its latest examination of AFC and
the Bank. Though AFC rated “Satisfactory,” the Bank’s rating sunk to a “3” on OTS’s
1–5 scale—down from the “2” it had received in previous years. The Bank’s
assets—mainly home mortgages and loans to real estate developers—had been
performing badly as the real estate market crashed, and OTS projected “further
deterioration” and “significant” risk in the Bank’s future. Relatedly, OTS had concerns
about the Bank’s capital levels. Though the Bank was a “well capitalized” institution
by the regulatory absolute scale, OTS felt that the Bank’s capital levels were actually
only “marginal” when compared to the Bank’s “high level of problem assets.”
After the examination report issued, the Bank agreed to create a three-year
business plan that included, among other things, “detailed capital preservation and
enhancement strategies with date specific narrative goals, which shall result in the
raising of new equity and a capital infusion by no later than September 30, 2008.” The
Bank submitted this plan to OTS shortly thereafter, along with a joint AFC–Bank
“Management Action Plan” and an AFC-approved “Capital Management Policy.” The
Management Action Plan frankly laid out the Bank’s troubles. “As a thrift, [the Bank’s]
loan portfolio has always been secured almost 100% by residential real estate,” and
when the real estate market slowed in late 2006 and early 2007, the Bank’s financial
condition took a hit as well. In particular, the Bank was suffering because it held a large
number of high-risk loans. Approximately half of the Bank’s mortgage portfolio was
made up of so-called “low-documentation” loans, and almost 60% of the bank’s loans
involved property in the particularly troubled states of California, Florida, Nevada,
Massachusetts, Arizona, and Michigan. Further, the Bank’s “A-Minus” loan program
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 4
was showing spectacular losses—over 30% of the loans in this program were past due,
and over 20% were more than three months past due.
As a bulwark against these troubles, AFC stated, it intended “to maintain capital
levels in excess of ‘well capitalized’ benchmarks.” It noted that “management is in the
middle of a capital raising exercise which is intended to raise sufficient additional capital
to meet both its quantitative and qualitative capital objectives.” In particular, AFC
planned to issue stock and contribute $240 million of the proceeds to the Bank by
September 30, 2008. At the same time, the Bank would both reduce its assets to help
limit its total risk and apply over $300 million of its next two years’ earnings toward its
capital. This combination of strategies, the Bank projected, would increase its capital
ratios significantly.
B. November 2008: Cease-and-Desist Orders Issue
AFC’s capital-raising plan fell through, however, and it did not contribute the
expected $240 million to the Bank. At the same time, the Bank’s loan portfolio “further
deteriorated,” leading OTS to downgrade the Bank to a “4” rating on September 30.
This rating placed the Bank in “Troubled Condition” per 12 C.F.R. § 563.555 and put
various restrictions on its management practices.
On November 19, 2008, OTS presented both AFC and the Bank with proposed
cease-and-desist orders (“C&Ds”) intended to “formalize the above ‘troubled condition’
provisions” and to further restrict their operations. The C&Ds were premised, at least
in part, on the failures of AFC and the Bank to “meet the specific capital enhancement
and preservation requirements contained within [their] business plan,” and the orders
contained provisions aimed specifically at remedying those failures. The Bank’s C&D
required, among other things, that it “have and maintain”—“by no later than December
31, 2008, and at all times thereafter”—“(I) a Tier 1 (Core) Capital Ratio of at least seven
percent (7%) and (ii) a Total Risk-Based Capital Ratio of at least twelve percent (12%).”
AFC’s C&D required “the Holding Company” to submit for approval “a detailed capital
plan” to attain and hold the Bank’s required capital ratios, and it required that AFC’s
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 5
“Board . . . ensure that [the Bank] complies with all of the terms of its Order to Cease
and Desist.”1
Rather than fight the orders in administrative hearings, both entities’ boards
agreed to stipulate to their issuance.
C. December 2008: Noteholder Dispute
Shortly after the C&Ds issued, AFC received a letter from some of its
noteholders claiming that AFC had violated its Note Purchase Agreement with them by
not keeping sufficient capital in the Bank. The noteholders also argued, however, that
AFC would further breach the agreement if it sold assets and transferred the proceeds
to the Bank to improve its capital ratios (as the noteholders believed AFC was
considering).
This warning concerned AFC’s board. At the next meeting, the board members
discussed whether AFC should bring a declaratory judgment action to clear up the
“possible conflict between OTS requirements for capital infusion for [the] Bank and
Senior Noteholder demands that [AFC] retain its assets.” In a later meeting, one board
member “pointed out that [OTS] may not look favorably upon the restrictions that the
Senior Noteholders want and that there will be a delicate balance between what the OTS
wants in terms of strengthening the Bank and what the Senior Noteholders want in terms
of keeping [AFC] strong.” The board would discuss these issues with the noteholders
through the winter and into 2009.
D. Winter 2008 – Summer 2009: The Bank’s Risk Reduction Plan and
OTS’s Compliance Report
The Bank failed to satisfy the C&D’s capital-ratio requirements by the December
31, 2008 deadline. As OTS found in its next examination report, instead of a 7% Tier
1 (Core) Capital Ratio and a 12% Total Risk-Based Capital Ratio, the Bank managed
only 4.95% and 9.99%, respectively. For this reason, OTS stated, “the holding company
1
The meaning of this clause is the primary question before this court today.
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 6
and bank were not in compliance” with paragraph 4(a) of AFC’s C&D. Similarly, “the
holding company and the bank” failed paragraph 8, as they “were not in compliance with
the minimum capital requirements of paragraph 4.a. of [AFC’s] C&D at December 31,
2008.”
OTS gave both AFC and the Bank “4” ratings overall, testifying to the Bank’s
continued poor performance. The report noted that AFC “contributed nearly $6 million
of capital into the bank during June 2008” and that it had converted “$55 million of
outstanding advances from the holding company to the bank . . . into capital
contributions during the fourth quarter of 2008.” But though “[m]anagement continues
to explore various options to internally generate capital/cash that can be down streamed
to the bank[,] it does not appear that a significant amount can be generated without
disposing of assets at a deep discount.” “[T]he holding company lacks the ability to
provide any further capital support to the bank,” OTS bluntly concluded.
In January 2009, the Bank sent OTS a Risk Reduction Plan intended to cover the
18 months between January 2009 and July 2010. As its name suggests, the Plan was
intended mainly to minimize the Bank’s high-risk assets: “The objective is to restructure
the Bank to create an institution which has approximately one-third fewer assets and
41% fewer high risk assets.” Though this approach would not achieve the C&D’s
mandated 7% and 12% capital ratios (in fact, it would initially reduce these ratios), the
Bank pledged to keep the Tier 1 Core and Total Risk-Based capital ratios at 4% and
8%, respectively. Nonetheless, the Bank claimed, this plan was necessary. “Despite
exhaustive efforts, the Bank has been unsuccessful in raising capital,” and the Bank felt
that it could not rely on “capital infusions from external sources.” Risk reduction, then,
was the only way forward: “Absent the sale of the Bank . . . there are two basic options.
First is the risk reduction program proposed in this Plan. Second is an FDIC
receivership.”
The Plan excluded the possibility of cash infusions from AFC. In an attempt to
get the noteholders to waive potential breaches of the Note Purchase Agreement, AFC
had proposed giving them AFC’s assets (other than the Bank and approximately
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 7
$12 million needed to pay debts) and “agree[ing] not to sell [AFC] assets or use the
remaining cash . . . for equity contributions to the Bank.”
OTS approved the Plan on February 20, 2009, subject to several oversight
conditions, and “so long as . . . the plan is successful in meeting its principal objectives
and there is no material decline in the financial condition of [the Bank] beyond that
which is projected in the plan.” Nevertheless, the Bank’s position continued to
deteriorate through the spring of 2009. On May 26, AFC’s board learned that OTS had
lowered the Bank’s composite rating from 4 to 5. Shortly thereafter, OTS sent the Bank
a proposed amendment to its C&D. The Bank’s board, however, declined to consent to
its entry until it had resolved several issues with OTS, and the amended order never
issued.
E. Summer – Fall 2009: Noteholder Agreement and “Prompt
Corrective Action”
In June 2009, AFC entered into an agreement with its noteholders. Under this
agreement, the noteholders agreed to waive AFC’s defaults of the Note Purchase
Agreement in exchange for a higher interest rate and earlier maturity date on the notes.
AFC also agreed to transfer any cash it held, above certain maximum amounts, to the
noteholders in monthly “mandatory prepayments.” OTS later approved the bulk of this
Amended Note Purchase Agreement, which was executed on September 2 with minor
modifications to comply with OTS requirements.
Meanwhile, the Bank’s position continued to decline. In August, the Bank’s
Board of Directors approved a resolution permitting the FDIC to enter into discussions
with prospective purchasers of the Bank’s assets or deposits. By October, AFC was
looking at potential alternatives to carrying on business as is, including restructuring and
other means of getting rid of its bad assets.
On November 4, 2009, OTS informed the Bank that it had become “Significantly
Undercapitalized” and thus subject to “Prompt Corrective Action” under 12 U.S.C.
§ 1831o(b) and 12 C.F.R. § 565.4(b). According to OTS, the Bank’s Total Risk-Based
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 8
Capital Ratio was then only 5.39%, and its Tier 1 Risk-Based Capital Ratio was 4.00%.
OTS instructed the Bank to submit a PCA (“prompt corrective action”) capital-
restoration plan or amendment by November 30, per 12 C.F.R. § 565.5, describing how
the Bank could return to adequate capital ratios. OTS also informed the Bank that this
PCA capital restoration plan must be accompanied by a “guarantee” from AFC (as the
Bank’s controlling shareholder). The PCA Standard Form of Guarantee and Assurances
specifically states that AFC would have to “utilize its available assets, when directed to
do so by OTS, to enable the Bank to implement its capital restoration plan,” subject to
some statutory limitations.
F. November 2009: Bankruptcy and Receivership
On November 18, 2009, OTS finalized another examination report. It brought
no good news. OTS now officially rated the Bank a “5” overall—the lowest possible
score in its rating system—finding that the Bank “continues to be a severely troubled
institution.” Though the Bank’s risk-reduction plan had been working, it was in worse
shape because “capital has declined at a much more rapid pace than total assets.” The
Bank had suffered significant losses, and its “high level of nonearning assets has
eliminated any prospects for earnings.” At current rates, it stated, “the bank will be
insolvent in approximately 6 months.” In sum, “The bank in its current format cannot
operate profitably,” and “failure is highly probable.”
AFC filed for Chapter 11 bankruptcy on November 30, 2009—the day AFC’s
PCA Standard Form of Guarantee and Assurances would have been due. Four days
later, OTS closed the Bank and appointed Appellant Federal Deposit Insurance
Corporation (“FDIC”) as receiver.
G. Procedural History
As the Bank’s receiver, the FDIC moved the bankruptcy court for an order under
11 U.S.C. § 365(o) requiring AFC to immediately cure the Bank’s capital deficit. The
FDIC also moved to withdraw the reference as to this motion, which the district court
granted.
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 9
Once in the district court, both parties filed motions for summary judgment. The
district court denied both motions, finding that though AFC had made a commitment to
OTS, it was not clear that AFC had committed to maintain the Bank’s capital, as
required by section 365(o). In particular, the part of the C&D requiring AFC to “ensure”
that the Bank maintained specific capital ratios was ambiguous; this provision was
“susceptible of more than one reasonable interpretation,” and so its meaning was a
question of fact, not of law.
After a four-day trial, the advisory jury concluded that AFC had not made an
enforceable commitment to maintain the Bank’s capital. The district court agreed,
finding that “Paragraph 8 was intended to create an obligation by the Board to oversee
the Bank’s attempt[s] to obtain and maintain specific capital [ratios], but there is no
evidence that it was intended to create or impose an enforceable obligation by AFC to
maintain the capital of the Bank.”
The district court entered final judgment in AFC’s favor on June 6, 2011. The
FDIC filed a timely notice of appeal on June 20, 2011. It challenges both the district
court’s finding of ambiguity and its ultimate interpretation of the C&D.
JURISDICTION
The district court had jurisdiction over this action pursuant to 12 U.S.C.
§ 1819(b)(2)(A) (“[A]ll suits of a civil nature at common law or in equity to which the
[FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United
States.”). This court has jurisdiction over the FDIC’s appeal of the district court’s final
judgment per 28 U.S.C. § 1291.
STANDARD OF REVIEW
The district court’s finding that the C&D is ambiguous is a question of law,
subject to de novo review by this court. Lincoln Elec. Co. v. St. Paul Fire & Marine Ins.
Co., 210 F.3d 672, 683–84 (6th Cir. 2000). The court’s interpretation of ambiguous
contract language, however, is a factual matter and may be overturned only if clearly
erroneous. Id. “A finding of fact will be deemed clearly erroneous only where it is
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against the clear weight of the evidence or when upon review of the evidence, the
appellate court ‘is left with the definite and firm conviction that a mistake has been
committed.’” West v. Fred Wright Constr. Co., 756 F.2d 31, 34 (6th Cir. 1985) (quoting
United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).
ANALYSIS
The goal of contract interpretation under the federal common law2 is to effect the
intent of the parties. Wulf v. Quantum Chem. Corp., 26 F.3d 1368, 1376 (6th Cir. 1994).
To determine this intent, the law incorporates the traditional methods of contract
interpretation. Id. Where a contract’s meaning is clear on its face, that meaning
controls. Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556 (6th Cir. 1998). Where a
contractual provision “is subject to two reasonable interpretations,” however, that
provision is deemed ambiguous, and the court may look to extrinsic
evidence—“additional evidence that reflects the intent of the contracting parties”—to
help construe it. Wulf, 26 F.3d at 1376 (citing Smith v. ABS Indus., 890 F.2d 841,
846–47 n.1 (6th Cir. 1989); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,
112–13 (1989)). The court may make presumptions and draw inferences from extrinsic
evidence, though the goal is still to discern the parties’ intentions. Id. (citing Boyer v.
Douglas Components Corp., 986 F.2d 999, 1005 (6th Cir. 1993)).
A. Waiver
As a preliminary matter, the court must resolve a dispute over the scope of its
review. AFC argues that district court’s ambiguity ruling is not before this court for two
reasons. We address each argument in turn.
1. Waiver Under Ortiz v. Jordan
First, AFC argues that under the Supreme Court’s recent decision in Ortiz v.
Jordan, ___ U.S. ___, 131 S. Ct. 884 (2011), the FDIC waived its right to appeal by
2
AFC’s Stipulation and Consent agreement provides that “[t]he laws of the United States of
America shall govern the construction and validity of [the C&Ds].”
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failing to move for judgment as a matter of law during or after the trial. Ortiz involved
a prisoner’s § 1983 suit against prison officers. Id. at 889–90. The defendant officers
moved for summary judgment on qualified-immunity grounds, but the district court
denied the motion. Id. at 890. After the jury returned a verdict for the plaintiff, the
officers neither renewed their motion for judgment as a matter of law nor moved for a
new trial. Id. at 890–91. On appeal, the circuit court reversed, holding that the district
court should have granted summary judgment on qualified-immunity grounds. Id. at
891. The Supreme Court granted certiorari and reversed, holding that because
defendants did not raise the qualified-immunity issue in a Rule 50(b) motion, the Court
of Appeals could not review the district court’s denial of summary judgment. Id. at 893.
Ortiz is not applicable here, however. Despite summarizing its ruling in
unfortunately broad language,3 the opinion in Ortiz was actually limited to cases where
summary judgment is denied because of factual disputes. The Court brushed aside the
defendants’ claim that they were appealing a purely legal issue that would be preserved
for appeal even without a Rule-50 motion: “We need not address this argument, for the
officials’ claims of qualified immunity hardly present ‘purely legal’ issues capable of
resolution ‘with reference only to undisputed facts.’” Id. at 892; see also id. at 893
(“[T]he qualified immunity defenses . . . do not present ‘neat abstract issues of law.’”).
Indeed, this court recently recognized that “Ortiz leaves open the possibility” that such
purely legal claims “may still be considered.” Nolfi v. Ohio Ky. Oil Corp., 675 F.3d 538,
545 (6th Cir. 2012); see also Fencorp, Co. v. Ohio Ky. Oil Corp., 675 F.3d 933, 940 (6th
Cir. 2012).4
3
See id. at 888–89 (“May a party . . . appeal an order denying summary judgment after a full trial
on the merits? Our answer is no.”).
4
Another panel has read Ortiz differently, stating, in an unpublished opinion, that a party’s
claimed right to appeal, after trial, a summary-judgment denial on purely legal issues “is now clearly
foreclosed in light of the Supreme Court’s recent decision in Ortiz v. Jordan.” Doherty v. City of
Maryville, 431 F. App’x 381, 384 (6th Cir. 2011). This statement was dicta, however, as the court
ultimately held that the issue was indeed reviewable in the context of a Rule 50(a) motion. See id. at
385–86. Similarly, the other cases cited in AFC’s supplemental-authority letter do not appear to have
applied Ortiz to bar review of purely legal issues. See Turner v. Ramo, LLC, 458 F. App’x 845, 846 n.1
(11th Cir. 2012) (“We need not address the Ramo Company’s argument that a pretrial denial of summary
judgment that raises purely legal questions is appealable. The issue the district court resolved at summary
judgment . . . did not present a pure question of law.”); In re Carlson, No. 11-13314, 2012 WL 1059412,
*3 (11th Cir. Mar. 30, 2012) (declining to review denial of summary judgment regarding justifiable
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 12
The district court’s ambiguity ruling was a pure question of law. See Lincoln
Elec. Co. v. St. Paul Fire & Marine Ins. Co., 210 F.3d 672, 683-84 (6th Cir. 2000).
Thus, under this circuit’s longstanding precedent, the district court’s decision “may be
appealed even in the absence of a post-judgment motion.” Barber v. Louisville &
Jefferson Cnty. Metro. Sewer Dist., 295 F. App’x 786, 789 (6th Cir. 2008) (citing United
States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Grp., Inc., 400 F.3d 428, 441 (6th
Cir. 2005)); see also McPherson v. Kelsey, 125 F.3d 989, 995 (6th Cir. 1997) (allowing
appellate review of summary-judgment denial where issue was “purely one of law”).
2. Invited-Error Doctrine
AFC next cites the invited-error doctrine, which holds that “a party may not
complain on appeal of errors that he himself invited or provoked the court or the
opposite party to commit.” Harvis v. Roadway Exp. Inc., 923 F.2d 59, 60 (6th Cir.
1991). AFC claims that the FDIC invited the very ruling that it now claims as error by
arguing, in the course of opposing AFC’s Rule-52 motion for judgment on partial
findings at the close of the FDIC’s case, that the jury rather than the judge should decide
the meaning of the C&D.
AFC fails to appreciate the context in which these statements were made,
however. Ambiguity was not at issue in AFC’s Rule-52 motion. That question had been
decided earlier in the case, and it was not being reargued. The trial itself had been
predicated on the existence of an ambiguous contract. As such, neither party argued the
issue of ambiguity, and the district court did not rule on the issue at that time. With
neither an erroneous ruling on ambiguity nor an invitation by the FDIC to commit such
error, the FDIC’s Rule-52 argument cannot prevent appeal on this issue.
B. Ambiguity
Next, we review the district judge’s finding that the C&D is ambiguous. The
FDIC’s argument focuses on paragraph 8 of AFC’s C&D, which provides, “The Board
reliance where “the court made factual findings on the justifiable reliance issue at trial”).
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shall ensure that the Association complies with all of the terms of its Order to Cease and
Desist issued by OTS on November 19, 2008.” The “Association” here is the Bank, and
its C&D required that it “have and maintain: (i) a Tier 1 (Core) Capital Ratio of at least
seven percent (7%) and (ii) a Total Risk-Based Capital Ratio of at least twelve percent
(12%).” Under the FDIC’s reading, this language bound AFC’s board to take whatever
steps necessary to satisfy the terms of the Bank’s C&D, including the requirement that
the Bank keep capital ratios within the specified ranges. To the extent that the Bank
failed in doing so itself, AFC would be required to step in and, if necessary, buttress the
Bank’s capital with its own funds.
Based on this text alone, the FDIC’s interpretation of the C&D is reasonable. As
the FDIC argues, the words “shall ensure” can reasonably be read to create obligations.
See, e.g., Merriam-Webster’s Collegiate Dictionary 416 (17th ed. 2008) (defining
“ensure” as “to make sure, certain, or safe : GUARANTEE”). The question before this
court, however, is not simply whether the FDIC’s interpretation is reasonable, but
whether it is the only reasonable interpretation of the C&D. The FDIC cannot show this,
for several reasons.
First, the connotations of “ensure” are not necessarily as clear and absolute as the
FDIC claims. The sentence, “The Board shall ensure that the Association complies,”
signals that the board is supposed to take steps to make the Association compliant, but
it does not specify the means that the board is to employ. Cf. Mendoza v. State of
California, No. BS 105 481, 2006 WL 3771018, at *2 (Cal. Super. Ct. Dec. 21, 2006)
(“AB 1381 provides only that the mayor ‘shall ensure that the cluster is represented in
the partnership’ by the representatives of the groups specified. It is unclear if ‘shall
ensure’ means that the Mayor personally has the ultimate choice of partners . . . .”). At
the very least, the board is limited by what it has the legal authority to do, as paragraph
15 confirms: “Nothing in this Order shall be construed as allowing the Holding
Company, its Board, officers or employees to violate any law, rule, or regulation.” But
is the board required to go to the bounds of that power? Must it issue stock or sell its
assets (even at a loss) and give the proceeds to the Bank? Must it breach contracts (such
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 14
as the Note Purchase Agreement)? Without context, the answers are unclear, though one
can imagine scenarios where the term “ensure” covers some, all, or none of these
requirements. The point here is that the words “shall ensure,” on their own, will not
preclude ambiguity. See United States v. Citizens Republic Bancorp, Inc., No. 11-cv-
11976, 2011 WL 2014873, at *1 (E.D. Mich. May 24, 2011) (rejecting proposed order
due to (among other things) its “use of the term ‘ensure’ without defining Defendants’
duties and responsibilities to ‘ensure’ that loan products are available and marketed in
certain areas— i.e., does ‘ensure’ mean guarantee?”).
In construing paragraph 8, it is important to examine what follows the term
“ensure”—that is, just what AFC’s board is ensuring. Here, the C&D speaks indirectly:
AFC’s board is not simply to ensure that the Bank’s capital ratios meet certain standards;
instead, it must “ensure that the Association complies” with the terms of its own C&D.
That is, the Bank is the one to maintain the capital ratios, while AFC’s Board is to
“ensure” that it does so. This indirection arguably suggests a narrower obligation than
the FDIC desires. Ensuring that another party does something is different from doing
that thing directly, and it not clear from this phrasing that paragraph 8 was intended to
obligate AFC to maintain the Bank’s capital ratios itself if the Bank did not do so.
The C&D is also inconsistent about the entity it is supposedly obligating.
Paragraphs 1–7 all specify that “the Holding Company” shall take certain actions or
refrain from taking certain actions, whereas paragraphs 4(b), 6, and 8 all provide that
“[t]he Board” shall take certain actions. The FDIC argues that these two terms are
effectively identical, because “there is no legal distinction between a corporation and the
board through which the corporation acts, and thus an obligation of the board is, by law,
an obligation of the company.” This statement is correct in at least one sense. As AFC
admits, “As a matter of corporate law, few would quibble” with the proposition that a
corporation acts through its board of directors. But there are other senses in which the
two terms are clearly not equivalent. Referring to a corporation’s assets as those of its
board, for instance, would make little sense. Further, several of the C&D’s provisions
appear to distinguish between AFC and its Board, suggesting that the drafters did not
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 15
understand the terms as fully equivalent. Paragraph 15, for instance, clarifies that
“[n]othing in this Order or the Stipulation shall be construed as allowing the Holding
Company, its Board, officers or employees to violate any law, rule, or regulation.”
Paragraph 4 both instructs “the Holding Company” to submit “a detailed capital plan”
to maintain certain capital ratios at the Bank, and orders “[t]he Board” to “monitor and
review the sufficiency of the [Bank’s] capital position.” Paragraph 6 also distinguishes
between the Holding Company, which “shall not enter into, renew, extend or revise any
contractual arrangement related to compensation or benefits for any director or Senior
Executive Officer,” and the Board, which “shall ensure that any contract, agreement, or
arrangement submitted to OTS fully complies with” certain relevant regulations. And
the C&D’s first recital notes that the “Holding Company” stipulated to the C&D “by and
through its Board of Directors (Board),” defining the two entities separately, though
essentially acknowledging that AFC often acts through its Board.
The FDIC does not attempt to reconcile its reading of “Board” with these
provisions separating the board from the company as a whole. As a result, its preferred
construction would render the separate definition of “Board” superfluous. Because the
parties are unlikely to have intended a contract with duplicative terms, the courts avoid
such a reading when possible. See Dotson v. Arkema, Inc., 397 F. App’x 191, 194
(6th Cir. 2010).
Even if the court accepted the FDIC’s argument that references to AFC’s board
of directors are effectively references to AFC itself, paragraph 8’s reference to “the
Board” could still be relevant to the meaning of the provision. The role of a company’s
board of directors is largely one of oversight; the board does not and indeed cannot make
all of a company’s decisions, and much of the day-to-day work at a company is done by
its executives, managers, and employees. Cf. In re Caremark Int’l Inc. Derivative Litig.,
698 A.2d 959, 971 (Del. Ch. 1996) (holding that a board of directors violates the duty
of good faith by a “sustained or systematic failure . . . to exercise reasonable oversight”).
Both paragraph 4(b) and paragraph 6—the only other provisions specifically directed at
AFC’s Board—appear to involve matters of oversight and review, suggesting that this
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 16
oversight role has been written into the C&D itself. Paragraph 4 is particularly
instructive. Its subpart (b) specifically puts AFC’s Board in a supervisory role: “The
Board shall monitor and review the sufficiency of the [Bank’s] capital position in
relation to the Association’s risk profile on a quarterly basis.” Similarly, Paragraph
6 simultaneously requires that “the Holding Company . . . not enter into, renew, extend
or revise” certain contractual arrangements and that “[t]he Board . . . ensure” that any
proposed contract “fully complies with” regulations. This enacts a broad prohibition
against certain actions taken by the company as a whole, but arguably provides a
narrower oversight role for the Board, which is responsible for “ensur[ing]” regulatory
compliance. This context suggests that paragraph 8’s reference to “the Board” could
also be meant to invoke its supervisory role, merely directing the Board to oversee the
Bank’s attempts to comply with its own C&D.
The FDIC raises several counter-arguments. First, it notes that the words
“monitor and review” in paragraph 4(b) shows that the drafters knew how to specify
oversight when they wanted to do so. Their failure to similarly specify in paragraph 8
thus implies that they intended more than a supervisory role here. Further, the FDIC
argues that reading paragraph 8 to require only an oversight role for AFC’s Board would
make Paragraph 4(b)’s “monitor and review” provision superfluous. It is true that this
provision would overlap with the oversight requirement that AFC proposes. But this
overlap would only be partial. Paragraph 4(b) requires specific actions by the
Board—quarterly reviews comparing the Bank’s capital position to its risk profile,
reflected in Board meeting minutes—that are not necessarily part of a general oversight
obligation. Conversely, the Bank’s C&D contains more than just the capital-ratio
requirements, and so a general obligation to oversee compliance with that order would
be broader than paragraph 4(b)’s narrow requirement. Under AFC’s reading, therefore,
neither paragraph would be entirely superfluous, as each would retain some effect
separate and apart from the other. The remaining partial overlap between paragraph 4(b)
and paragraph 8 is not enough to make AFC’s interpretation unreasonable, particularly
given the superfluity created by the FDIC’s proposed reading of “the Board” as
equivalent to “the Holding Company.”
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 17
There is enough textual evidence in the C&D to support both an interpretation
where AFC has committed to maintain the Bank’s capital ratios and an interpretation
where AFC’s Board is required only to oversee the Bank’s efforts to improve its capital
ratios. Neither interpretation is perfect. Each strains in certain areas and each creates
superfluities and awkward interpretations in other parts of the C&D. But none of these
difficulties are so great as to make either reading unreasonable. The C&D is therefore
ambiguous, as the district court correctly found.
C. Agency Deference
The FDIC next argues that even if the C&D is ambiguous, OTS has already
settled its meaning by interpreting the C&D as imposing a capital-maintenance
requirement on AFC. The FDIC points to OTS’s February 2009 examination report,
which (among other things) evaluated AFC’s compliance with the C&D. Regarding
paragraph 8, the report found: “As previously stated, the holding company and the bank
were not in compliance with the minimum capital requirements of paragraph 4.a. of the
C&D at December 31, 2008.” The FDIC argues that this shows OTS’s understanding
that both the holding company and the bank were required to maintain the Bank’s
capital, and this reasonable interpretation of OTS’s own order is controlling under
Supreme Court precedent. See Auer v. Robbins, 519 U.S. 452, 461 (1997) (holding that
Secretary of Labor’s interpretation of his own regulations is controlling).
Auer deference is not absolute, however. Courts need not defer to an agency’s
interpretation that “is plainly erroneous or inconsistent with the regulation[s]” or where
there is any other “reason to suspect that the interpretation does not reflect the agency’s
fair and considered judgment on the matter in question.” Chase Bank USA, N.A. v.
McCoy, 562 U.S. ___, 131 S. Ct. 871, 880–81 (2011) (quoting Auer, 519 U.S. at 461,
462) (internal quotation marks omitted). This qualification applies here. If taken at face
value, the report’s claim that both “the holding company and the bank were not in
compliance with the minimum capital requirements of paragraph 4.a.” was clearly
incorrect. Paragraph 4(a) created no minimum capital requirements at all, let alone ones
that applied to both AFC and the Bank. Though OTS probably meant that the Bank was
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 18
not in compliance with its own capital-maintenance obligation as referenced in
paragraph 4(a), this lack of precision makes it impossible for us to read the conclusion
as a clear statement that AFC was obligated to maintain the Bank’s capital. If this
statement is not too vague to be considered an interpretation on this point, it is plainly
inconsistent with the C&D itself and thus not a reflection of fair and considered
judgment. In either case, it is not entitled to Auer deference.
D. Extrinsic Evidence and Construction of the Agreement
The FDIC next challenges the district court’s ultimate interpretation of the C&D.
It argues that the lower court erred on two fronts, both by using extrinsic evidence
improperly and by failing to recognize pertinent evidence supporting the FDIC’s
interpretation.
1. The Trial
Only the FDIC put forward a case at trial, presenting the testimony of five
witnesses. Three of those witnesses’ testimony is not particularly relevant to the issues
on appeal, but the other two witnesses did testify regarding the cease-and-desist orders.
The first of these two, Joseph Campanella, had been a board member of both AFC and
the Bank from late 2001 to December 2009. He testified at length about the events
leading up to this suit. Of relevance here, Mr. Campanella testified that he did not
understand the C&D to be a guarantee of the Bank’s performance, nor did he understand
AFC to be committing itself to infuse capital into the bank or to maintain its capital
ratios. Instead, he read the document as creating an oversight responsibility for AFC’s
board. The second witness, Daniel McKee, testified through deposition excerpts. Mr.
McKee had been OTS regional deputy director of operations during most of the relevant
time period. He stated his understanding that the C&D did not create a capital-
maintenance obligation; instead, paragraph 8 was addressed only to the board’s
responsibility as an overseeing body.
At the end of the trial, the advisory jury concluded that AFC had not made an
enforceable commitment to maintain the Bank’s capital. The district court agreed,
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 19
finding that “Paragraph 8 was intended to create an obligation by the Board to oversee
the Bank’s attempt[s] to obtain and maintain specific capital [ratios], but there is no
evidence that it was intended to create or impose an enforceable obligation by AFC to
maintain the capital of the Bank.”
The FDIC’s witnesses did not help its case, the court found, and the testimony
of both Mr. Campanella and Mr. McKee actually tended to support AFC’s case. The
court noted that the circumstantial evidence also favored AFC’s reading of the C&D.
Among other things, the court found “absolutely no evidence that the OTS ever
attempted or intended to enforce any such [capital-maintenance] commitment.” Further,
AFC’s “failure to [execute a formal guarantee] constitutes powerful evidence that AFC
never intended to make such a [capital-maintenance] commitment at that time, or any
time prior,” and “[t]he Risk Reduction Plan expressly disavowed any notion that AFC
intended to provide any capital contributions in order to maintain the capital of the
Bank.” As the party bearing the burden of proof, the FDIC’s failure to present sufficient
evidence was fatal: “[T]here is no evidence that the terms of the Cease and Desist Order
at issue in this case[] imposed upon AFC, as a matter of law, an obligation to maintain
the capital of the Bank.” In sum, the court found “that the FDIC failed to present
sufficient evidence to establish that either the OTS or the AFC understood or intended
for the documents at issue to impose or create a commitment by AFC to maintain the
capital of the Bank.”
2. The Court’s Use of Extrinsic Evidence
The FDIC initially argues that the court improperly relied on the testimony of
AFC board member Campanella. It claims that Mr. Campanella’s testimony is legally
irrelevant for two reasons. First, the FDIC argues that because OTS drafted the C&D,
only its understanding of the agreement’s terms is relevant. Second, the FDIC argues
that because section 365(o) is not limited to guarantees and commitments to make direct
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 20
infusions of capital, Mr. Campanella’s testimony, which concerned only such guarantees
and commitments, is not relevant to whether section 365(o) applies.5
The FDIC is wrong on both counts. First, hornbook law holds that the intent of
both parties to a contract is relevant to construing its terms. See, e.g., Restatement
(Second) of Contracts § 201 (1979). As one of the AFC board members who agreed to
entry of the C&D, Mr. Campanella’s testimony is relevant to AFC’s understanding of
the terms to which it was agreeing. The FDIC’s citation to Potti v. Duramed Pharm.,
Inc., 938 F.2d 641 (6th Cir. 1991), which held that a witness could not testify to the
meaning of an agreement when the witness “was not a party to the Escrow Agreement
nor was he involved in the drafting of the Agreement” id. at 647–48, is therefore
inapposite. The FDIC argues that “[w]hat AFC thought of the Stipulation and Order
is . . . irrelevant” because “it believed that it had little choice but to sign if it wanted the
Bank to remain open.” But it provides no evidence that AFC actually held such a belief,
let alone any legal authority supporting such an exception to standard contract-
interpretation principles.
The FDIC’s second argument confuses relevant and dispositive evidence. The
FDIC admits that a guarantee or commitment to infuse capital would satisfy section
365(o); indeed, it has injected the capital-infusion issue into its own case, arguing that
AFC’s capital infusions are themselves evidence of a commitment to maintain the
Bank’s capital. Thus, even if Mr. Campanella’s testimony relates only to this subset of
section 365(o), it is clearly relevant to that extent.
Later in its briefing, under the title “The Court Misconstrued Section 365(o),” the
FDIC takes this argument a step further. Despite the heading, the FDIC does not
actually claim that the district court misconstrued the statute, only that it misapplied its
construction. The FDIC accepts the court’s holding that “the statute does not require a
commitment to ‘infuse equity capital,’ or an ‘absolute guarantee of performance,’
5
The FDIC also argues that Mr. Campanella’s testimony is unreliable because it is contradicted
by other documents and evidence. This is just another facet of its affirmative case (or lack thereof), which
is discussed below.
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 21
although such promises are clearly included in the realm of ‘commitments to maintain
capital.’” The FDIC argues, however, that the district court failed to follow its own
construction when it based its decision in part on Mr. Campanella’s testimony.
Even under this broad interpretation of section 365(o)—which we do not pass
judgment on today—the FDIC’s argument fails. While it may be true that Mr.
Campanella’s testimony, standing alone, would not definitively prove that section 365(o)
is inapplicable, the district court did not find otherwise. The court properly examined
all the evidence regarding the parties’ understandings of the C&D and found, based on
the totality of that evidence, that the FDIC did not satisfy its burden of proof. The court
did not rely exclusively on Mr. Campanella’s testimony; nor did it use that testimony for
any improper purpose. The FDIC’s claim to the contrary therefore fails.
Next, the FDIC argues that the district court drew improper inferences from three
sets of facts: (a) AFC’s failure to sign a guarantee in response to OTS’s corrective
action; (b) OTS’s failure to enforce the Order; and (c) the statement in AFC’s Risk
Reduction Plan stating that it “assumes no further capital contributions will be received
from the holding company.” At heart, these objections are based largely on the already-
rejected assumption that only the drafter’s contemporaneous intent is relevant to
interpretation. But making inferences from circumstantial evidence and the parties’
course of performance is standard procedure in construing ambiguous contracts. See,
e.g., Boyer v. Douglas Components Corp., 986 F.2d 999, 1005 (6th Cir. 1993) (“[A]
court may use traditional methods of contract interpretation to resolve the ambiguity,
including drawing inferences and presumptions and introducing extrinsic evidence.”);
Restatement (Second) of Contracts § 202(1), (4) (“Words and other conduct are
interpreted in the light of all the circumstances, and if the principal purpose of the parties
is ascertainable it is given great weight”; “any course of performance accepted or
acquiesced in without objection is given great weight in the interpretation of the
agreement.”). While the FDIC can question the extent to which the inferences should
hold here, it cannot show that they are categorically improper. Its objection therefore
fails.
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 22
3. The FDIC’s Evidence
The FDIC also makes an affirmative case for its interpretation, arguing that the
district court failed to consider legally pertinent evidence allegedly demonstrating that
OTS and AFC interpreted the C&D as requiring AFC to maintain the Bank’s capital.
First, the FDIC again cites the February 2009 examination report’s statement that
AFC was not in compliance with Paragraph 8 because, “[a]s previously stated, the
holding company and the bank were not in compliance with the minimum capital
requirements of paragraph 4.a. of the C&D at December 31, 2008.” As discussed
regarding the FDIC’s agency-deference argument, this statement is either irredeemably
vague or plainly mistaken. Paragraph 4(a) only applied to AFC, and it only required
submission of a plan to maintain the Bank’s capital. Contrary to the literal meaning of
the report’s claim, neither AFC nor the Bank could have violated this section by failing
to maintain the specified capital ratios. The FDIC rather boldly claims that this flatly
incorrect statement was both “meaningful and intentional” and in fact proves that the
capital-ratio requirements applied to both parties, but it provides no logical basis for this
leap. The more likely explanation is that the statement was simply imprecise in
matching AFC and the Bank with their respective obligations. This imprecision prevents
us from reading the statement to confirm that OTS saw a capital-maintenance obligation
in the C&D. Nor can one infer anything about AFC’s understanding of the C&D from
its failure to object to this unclear statement.
Next, the FDIC quotes AFC executives and board members as acknowledging
the “need” to improve the Bank’s capital. As AFC points out, however, the Bank’s
capital did need to improve at that time, as it was below the agreed-upon levels. The
board’s acknowledgment of that fact says nothing about whether AFC had committed
to maintain the Bank’s capital, and the meeting minutes do not clarify that point.
The FDIC also argues that the AFC board’s discussion of the noteholders’ threat
letter supports its interpretation of the C&D. In the board meeting following receipt of
this letter, one board member expressed concerns “that the [noteholders’] position
conflicts with the OTS objectives of wanting capital going into the Bank from the
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 23
Corporation,” and another wanted to consider a declaratory judgment action “where
there is a possible conflict between OTS requirements for capital infusion for [the] Bank
and Senior Noteholder demands that [AFC] retain its assets.” Though these statements
do lend some support to the FDIC’s position, they are far from dispositive. Not only are
these the statements of single board members, but the two statements suggest different
understandings of AFC’s obligations. While the second statement refers to “OTS
requirements for capital infusion,” the first statement mentions only “OTS objectives.”
Further, the second statement refers only to a “possible conflict,” suggesting uncertainty
about the facts.
The FDIC also finds support in AFC’s decision to recharacterize $14.9 million
of debt to the Bank, “thereby increasing the capital ratios of the Bank” and satisfying its
“previous[] commit[ment] to the Office of Thrift Supervision to make a capital
contribution to the Bank of at least $10 million.” The evidence, however, including the
unrebutted deposition testimony of Peter Goldberg, President of both AFC and the Bank,
shows that this specific commitment was unrelated to the C&D.
Finally, the FDIC argues that the court should have drawn a favorable inference
from the context in which the C&Ds were entered. Because the Bank had already failed
to maintain the capital ratios that it had agreed to, the FDIC submits, the C&Ds must
have been intended to add further restrictions on the Bank and AFC. The FDIC’s logic
is fair, but its conclusion does not follow. Unlike an informal agreement or a
memorandum of understanding, a cease-and-desist order is a formal enforcement action.
It is made public and can be enforced in the courts. See 12 U.S.C. § 1818(b)–(d), (I), (u)
(2009). By its nature, then, the C&D placed more restrictions on AFC than the prior,
informal agreement had, even if it lacked a capital-maintenance obligation.
4. Weighing the Evidence
The ultimate question for this court is whether, in light of the evidence, the
district court committed clear error by finding that the C&D’s paragraph 8—which
provides that “[t]he Board shall ensure that the [Bank] complies with all of the terms of
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 24
its Order to Cease and Desist issued by OTS on November 19, 2008”—did not obligate
AFC to maintain the Bank’s capital.
As discussed above, the FDIC points to little evidence that the parties understood
paragraph 8 to obligate AFC to maintain the Bank’s capital ratios. Much of the FDIC’s
proffered evidence shows that AFC wanted to improve the Bank’s capital. But this
evidence is not particularly compelling, because AFC could have wanted the Bank to be
adequately capitalized for reasons entirely separate from any capital-maintenance
obligation. The parties’ motivations point the same way here, because both OTS and
AFC wanted to keep the Bank solvent. Further, because of OTS’s regulatory power over
the Bank, AFC had incentives to follow OTS’s capital-ratio suggestions even if it was
not obligated to do so. The FDIC fails to distinguish these possible motivations, leaving
uncertainty about whether AFC was acting because it believed it was obligated to do so
under the C&D, whether it was acting because it wanted to get out from under OTS’s
regulatory thumb, or whether it was acting simply out of a desire to keep the Bank
solvent through a difficult period.
The strongest evidence of a capital-maintenance obligation is an AFC board
member’s late-2008 worry about a “possible conflict between OTS requirements for
capital infusion for [the] Bank and Senior Noteholder demands that [AFC] retain its
assets.” But as discussed above, this statement is partially undercut by a different board
member’s reference to “OTS objectives” rather than requirements. A third board
member, Mr. Campanella, testified that he knew of no capital-infusion obligation, further
weakening any suggestion that this statement proves the intent or understanding of
AFC’s board. Finally, OTS expressly approved the later agreement between the
noteholders and AFC that strictly limited AFC’s ability to contribute funds directly to
the Bank, suggesting that it did not see a conflict between AFC’s obligations and
noteholders’ demands.
Other evidence suggests that OTS itself agreed with AFC’s interpretation. Its
March 2009 examination report noted that AFC “lacks the ability to provide any further
capital support to the bank.” OTS raised the possibility of AFC selling its assets at a
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 25
loss, but it neither required this nor suggested that AFC should in fact take this step,
suggesting that OTS saw nothing to be done from AFC’s perspective. Mr. McKee’s
testimony further supports this view. He stated that he did not read AFC’s C&D to
create a capital-maintenance obligation and that he understood paragraph 8 to refer to
the board’s oversight role only.
Further, the overall course of events supports AFC’s interpretation of the C&D.
As the Bank’s financial position steadily declined, OTS’s regulatory interest in the Bank
and AFC rose. After the Bank’s composite rating dropped to a 3 in June 2008, OTS
required only a private memorandum of understanding and a plan to raise capital. When
that plan failed and the Bank’s rating dropped to a 4, OTS required a public, judicially
enforceable cease-and-desist order. Though the C&D also failed to increase the Bank’s
capital ratios, OTS accepted a temporary Risk Reduction Plan, understanding that AFC
lacked the ability to contribute more capital to the Bank without selling its assets at a
steep discount. Similarly, OTS approved AFC’s agreement with its noteholders that
essentially forbid AFC from directly contributing capital to the Bank. Finally, when the
Bank’s rating fell to a 5, OTS initiated “prompt corrective action” and required AFC to
sign a formal guarantee that it would “utilize its available assets, when directed to do so
by OTS, to enable the Bank to implement its capital restoration plan.” Though AFC did
not execute this guarantee before it filed for bankruptcy, OTS made clear that it was
required for the Bank’s continued existence as an AFC subsidiary.
As the FDIC admits, one would expect increasingly stronger regulatory actions
as the Bank’s situation became more dire. Under AFC’s reading of the C&D, this would
indeed be the case. But under the FDIC’s interpretation, the PCA Standard Form of
Guarantee and Assurances would have been superfluous. This does not definitively
prove AFC’s position; as the FDIC argues, the PCA guarantee was required by law
regardless of whether a capital-maintenance obligation already existed. But this pattern
of increasingly strict regulatory action corresponds with the Bank’s increasingly tenuous
financial position and supports the bulk of the testimony and documentary evidence,
No. 11-3677 FDIC v. AmTrust Fin. Corp. Page 26
which suggests that neither OTS nor AFC saw the cease-and-desist order as creating a
capital-maintenance obligation.
In light of these facts, the district court’s finding cannot be said to be “against the
clear weight of the evidence” here. West v. Fred Wright Constr. Co., 756 F.2d 31, 34
(6th Cir. 1985) (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).
The court’s ruling in AFC’s favor was therefore not clearly erroneous.
CONCLUSION
Despite the complicated fact pattern and the variety of legal arguments raised in
the parties’ briefs, the ultimate issues here are relatively straightforward. The district
court correctly held that the C&D is ambiguous on its face because paragraph 8’s
requirement that AFC’s board “ensure that [the Bank] complies” with its own cease-and-
desist order can reasonably be read as establishing either an oversight role or a capital-
maintenance commitment. OTS’s alleged interpretation of the C&D is not entitled to
deference because it is too vague to be considered an interpretation or else because it is
a clearly erroneous reading of the C&D. And the district court’s decision construing the
C&D as not including a capital-maintenance commitment was not clearly erroneous
because the bulk of the extrinsic evidence favors the “oversight” reading of the C&D.
For these reasons, we AFFIRM the district court.