Ridder, Willem v. OTS ( 1998 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 6, 1998 Decided July 17, 1998
No. 97-5181
Willem Ridder, et al.,
Appellants
v.
Office of Thrift Supervision and
Ellen S. Seidman, Director,
Appellees
Appeal from the United States District Court
for the District of Columbia
(No. 95cv01656)
Richard Harrington argued the cause for appellants, with
whom James H. McGrew was on the briefs.
Dirk S. Roberts, Assistant Chief Counsel, Office of Thrift
Supervision, argued the cause for appellees, with whom
Thomas J. Segal, Deputy Chief Counsel, and Jacqueline H.
Fine, Trial Attorney, were on the brief.
Before: Wald, Sentelle and Randolph, Circuit Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge: Four former bank officers appeal
the district court's dismissal of a lawsuit they initiated to
enjoin the enforcement of a temporary order to cease and
desist issued by the Office of Thrift Supervision. We agree
with the district court that it lacked jurisdiction to consider
this case, and affirm.
I. Background
A.
In 1989, Congress enacted the Financial Institutions Re-
form, Recovery, and Enforcement Act, Pub.L. No. 101-73,
103 Stat. 183 ("FIRREA"), in part " '[t]o improve the supervi-
sion of savings associations by strengthening capital, account-
ing and other supervisory standards' and to 'promote,
through regulatory reform, a safe and stable system of af-
fordable housing finance.' " Transohio Sav. Bank v. Di-
rector, OTS, 967 F.2d 598, 603 (D.C. Cir. 1992) (quoting
FIRREA s 101(1) & (2), 103 Stat. 187, 12 U.S.C. s 1811
note). In addition to establishing stricter capital require-
ments for thrifts, FIRREA also consolidated many of the
powers and duties of two prior regulatory bodies in a newly-
created entity, the Office of Thrift Supervision ("OTS"). See
American Fed'n of Gov't Employees v. FLRA, 46 F.3d 73, 74
(D.C. Cir. 1995); CityFed Fin. Corp. v. OTS, 58 F.3d 738, 741
(D.C. Cir. 1995). Under this statutory regime, when OTS
determines that "any insured depository institution ... or
any institution-affiliated party is engaging or has engaged ...
in an unsafe or unsound practice in conducting the business of
such depository institution, or is violating or has violated ...
a law, rule, or regulation, or any condition imposed in writing
by the agency," it may "issue and serve upon the depository
institution or such party a notice of charges ... [which] shall
contain a statement of the facts constituting the alleged
violation ... and shall fix a time and place at which a hearing
will be held to determine whether an order to cease and
desist therefrom should issue against the depository institu-
tion or the institution-affiliated party." 12 U.S.C.
s 1818(b)(1).
OTS is statutorily empowered to "issue a temporary order
requiring the depository institution or such party to cease and
desist from any ... violation or practice [charged in a section
1818(b)(1) proceeding] and to take affirmative action ...
pending completion of such proceedings." 12 U.S.C.
s 1818(c)(1). It may issue such an order if it
determine[s] that the violation or threatened violation or
the unsafe or unsound practice or practices, specified in
the notice of charges served upon the depository institu-
tion or any institution-affiliated party pursuant to para-
graph (1) of subsection (b) of this section, or the continu-
ation thereof, is likely to cause insolvency or significant
dissipation of assets or earnings of the depository institu-
tion, or is likely to weaken the condition of the depository
institution or otherwise prejudice the interests of its
depositors prior to the completion of the proceedings
conducted pursuant to paragraph (1) of subsection (b) of
this section....
Id.Congress prohibited courts from reviewing regulated enti-
ties' challenges to OTS-initiated proceedings under most cir-
cumstances. See 12 U.S.C. s 1818(i)(1); CityFed Fin. Corp.,
58 F.3d at 741-42. However, the "depository institution
concerned or any institution-affiliated party" may appeal to a
United States district court from a temporary cease-and-
desist order within ten days after being served with the
order. 12 U.S.C. s 1818(c)(2). On appeal, a district court
may enjoin such an order in whole or in part. Id.B.
In 1984, CityFed Financial Corporation ("Holding Compa-
ny"), a savings and loan holding company, was created in
order to acquire City Federal Savings Bank ("Bank"), a
federally insured savings institution. City Collateral and
Financial Services, Inc. ("Subsidiary") is a second tier subsid-
iary of Bank. Appellants Willem Ridder, Lyndon C. Merkle,
John T. Hurst, and Gregory DeVany are former officers of
Subsidiary. See Complaint pp 1-4.
When Holding Company acquired Bank, Holding Compa-
ny--at the insistence of pre-FIRREA regulatory agency Fed-
eral Home Loan Bank Board--agreed to maintain Bank's net
worth at a level consistent with regulatory requirements, and
also agreed to infuse additional equity capital into Bank if
necessary. Holding Company did not live up to these prom-
ises. Thus, in 1989, OTS declared Bank insolvent, and ap-
pointed the Resolution Trust Corporation ("RTC") as Receiv-
er for Bank.
In 1994, pursuant to 12 U.S.C. s 1818(b)(1), OTS brought
administrative enforcement proceedings against Holding
Company and seven of its current and former directors. A
Notice of Charges and Hearing ("Notice of Charges")
charged them with letting Bank's net worth plunge below
regulatory requirements by approximately $118 million. The
Notice of Charges sought restitution of the $118 million, and
demanded payment of over $2 million in civil penalties. Ap-
pellants were not named in the Notice of Charges.
Holding Company's assets dwindled considerably after
Bank was placed in receivership. Thus, in June 1994, pursu-
ant to 12 U.S.C. s 1818(c)(1), OTS issued a temporary cease-
and-desist order ("Temporary Order") which restricted Hold-
ing Company's use of its assets. OTS justified its issuance of
the Temporary Order by concluding that Holding Company
was "likely to cause ... significant dissipation of assets or
earnings of the depository institution." 12 U.S.C.
s 1818(c)(1). Under the Temporary Order, which remains in
effect, Holding Company is entitled to a $15,000 per month
allowance to cover its operating expenses, and may dip into
its assets to pay reasonable legal expenses incurred in its own
defense. The Temporary Order also contains a "hardship"
provision permitting Holding Company to petition for relief if
the order's enforcement "threatens to cause undue hardship
to [Holding Company] in conducting its business or affairs." 1
Appellants were not named in the Temporary Order.
In 1992 (two years before the Temporary Order issued),
the RTC sued appellants for fraud and breach of fiduciary
duty. These claims had nothing to do with the earlier
administrative proceedings initiated by OTS. Invoking a
provision in Holding Company's bylaws requiring Holding
Company to pay the legal fees and expenses of former
officers and directors, appellants asked Holding Company to
front them the attorney fees and costs they expected to incur
in the RTC fraud litigation. When Holding Company re-
fused, appellants sued it in New Jersey district court to
compel it to pay the fees. The district court denied appel-
lants' motions for a preliminary injunction and summary
judgment. Ridder v. CityFed Fin. Corp., 853 F. Supp. 131(D.N.J. 1994). The Third Circuit reversed, ruling that Hold-
ing Company must advance appellants' litigation expenses,
and remanded to the district court for entry of an appropriate
injunction. 47 F.3d 85 (3rd Cir. 1995). The Third Circuit,
however, did not address whether the Temporary Order
might have an impact on its ruling, noting that such matters
were "a matter for other tribunals to decide," and "purely
speculative" on the record before it. Id. at 87-88.
Meanwhile, in a separate action, Holding Company and its
directors brought a lawsuit in the United States District
Court for the District of Columbia, seeking to enjoin enforce-
__________
1 On February 1, 1996, an Administrative Law Judge granted
OTS's motion for partial summary disposition of its net worth
maintenance claim against Holding Company, recommending that
the Director of OTS issue an order forcing Holding Company to pay
nearly $120 million in restitution to the RTC, as Receiver for Bank.
Holding Company appealed. On appeal, the Director of OTS
vacated the ALJ's order, and remanded to the ALJ for further
proceedings. In doing so, the Director concluded that additional
factual development was required to determine whether Holding
Company was unjustly enriched by retaining funds belonging to
Bank.
ment of the Temporary Order. The district court ruled
against Holding Company, CityFed Fin. Corp. v. OTS, 919
F. Supp. 1 (D.D.C. 1994), and we affirmed, 58 F.3d 738 (D.C.
Cir. 1995). Among other things, we upheld OTS's authority
to issue the Temporary Order, and concluded that Holding
Company and its directors had failed to show irreparable
harm warranting the injunctive relief they were seeking.
On remand from the Third Circuit, the New Jersey district
court entered an injunction requiring Holding Company to
advance appellants their legal expenses. Holding Company
applied to OTS for payment, but OTS refused, stating that
the Temporary Order only permitted the disbursement of
funds to relieve hardship to Holding Company itself. Hold-
ing Company appealed from the district court's injunction,
and the Third Circuit ruled in its favor. The Third Circuit
rather colorfully characterized Holding Company's dilemma
as follows:
[Holding Company] is ... caught between Scylla and
Charybdis; it stands squarely between two diametrically
opposed rulings of two United States Courts of Appeals.
The first, a ruling from this Court, directed it to pay
[appellants'] legal expenses. The second, a decision from
the Court of Appeals for the District of Columbia Circuit,
upheld the validity of [the Temporary Order] which
prevents [Holding Company] from paying those ex-
penses.
Ridder v. CityFed Fin. Corp., No. 95-5558, slip op. at 4-5 (3rd
Cir. Apr. 18, 1996) (unpublished opinion). Recognizing that
the Temporary Order made it impossible for Holding Compa-
ny to comply with the district court's order, the Third Circuit
vacated the district court's order, and remanded to the dis-
trict court for further proceedings.
Shortly after we issued our decision in CityFed Fin. Corp.,
Holding Company asked OTS for permission to pay appel-
lants' litigation expenses. OTS refused, stating that neither
our decision nor that of the Third Circuit compelled it to
grant the requested hardship relief. It added that payments
to appellants were not entitled to any priority over the claims
of Holding Company's other creditors, and that no such
payments could be made until Holding Company met its net
worth maintenance obligations.
Finally, we arrive at the lawsuit that gave rise to this
appeal. Appellants filed this case in August 1995 in the
United States District Court for the District of Columbia,
seeking an injunction prohibiting OTS from enforcing its
Temporary Order and requiring OTS to authorize Holding
Company to disburse approximately $450,000 to them for
attorney fees and costs. OTS and its Director were named as
defendants in that lawsuit, and are appellees before us.
In a Memorandum and Order, the district court concluded
that it lacked subject matter jurisdiction to consider appel-
lants' claims. The court determined that appellants did not
qualify as the "depository institution concerned" or an
"institution-affiliated party" under the statutory provision
permitting judicial review of temporary cease-and-desist or-
ders. 12 U.S.C. s 1818(c)(2). In reaching this conclusion,
the court observed that appellants were not parties to the
underlying administrative proceeding, that they had not been
charged with violations under section 1818(b)(1), and that
they had not been served with a temporary cease-and-desist
order under section 1818(c)(1). After concluding that section
1818 "does not recognize an independent right to challenge
the validity of OTS enforcement orders," the district court
dismissed the case for want of jurisdiction. Memorandum
and Order at 8.
Appellants filed a timely appeal from the district court's
dismissal of their case.2
__________
2 We note in passing that the district court's Memorandum and
Order is procedurally defective because it fails to satisfy Rule 58's
requirement that "[e]very judgment shall be set forth on a separate
document." Fed. R. Civ. P. 58. This defect, however, has no
practical effect on this appeal because it is clear that the district
court intended to render a final, appealable judgment. See Memo-
randum and Order at 9 (ordering "that plaintiffs' complaint be and
it is hereby dismissed"); see also Spann v. Colonial Village, Inc.,
899 F.2d 24, 32 (D.C. Cir. 1990) ("mechanical application of the
separate-judgment rule should not be used to require the pointless
II. Discussion
We review the district court's legal conclusion that it lacked
subject-matter jurisdiction to consider appellants' claims de
novo. See United States ex rel Findley v. FPC-Boron Em-
ployees' Club, 105 F.3d 675, 681 (D.C. Cir.), cert. denied, 118
S.Ct. 172 (1997).
A.
"To prevent regulated parties from interfering with the
comprehensive powers of the federal banking regulatory
agencies, Congress severely limited the jurisdiction of courts
to review ongoing administrative proceedings brought by
banking agencies." CityFed Fin. Corp., 58 F.3d at 741.
Indeed, no court may review such proceedings unless section
1818 specifically provides for judicial review:
[E]xcept as otherwise provided in this section no court
shall have jurisdiction to affect by injunction or otherwise
the issuance or enforcement of any notice or order under
[section 1818], or to review, modify, suspend, terminate,
or set aside any such notice or order.
12 U.S.C. s 1818(i)(1) (emphasis added).
Appellants renew their claim that they qualify as
"institution-affiliated" parties under subsection 1818(c)(2)--an
exception to section 1818(i)(1)'s general prohibition of judicial
review--and that their claims are therefore subject to the
jurisdiction of the district court. If appellants do not qualify
under subsection (c), the only statutory exception they have
asserted, "no court shall have jurisdiction" to hear their
challenge to the Temporary Order. 12 U.S.C. s 1818(i)(1);
see also Henry v. OTS, 43 F.3d 507, 513 (10th Cir. 1994) ("In
section 1818(i), Congress ... explicitly preclud[ed] jurisdic-
tion in any situation except where it had specifically provided
__________
formality of returning to the district court for ministerial entry of
judgment") (citation omitted). Nonetheless, we again "emphasize
that, to avoid dispute and promote certainty, it is the better practice
for the district court to assure as a matter of course the entry of
each judgment as a separate document." Id.for a particular court to exercise jurisdiction.") (citing Board
of Governors v. MCorp Fin., Inc., 502 U.S. 32, 44 (1991));
United States v. Spiegel, 995 F.2d 138, 140 (9th Cir. 1993)
("This statutory language leaves no room to doubt that
Congress provided only one avenue for challenging the terms
of an OTS restraining order--an action brought under 12
U.S.C. s 1818."); Carlton v. Firstcorp, Inc., 967 F.2d 942, 946
(4th Cir. 1992) ("[I]t seems clear to us that by devising a
comprehensive scheme governing the oversight of financial
institutions, from administrative control through judicial re-
view of the administrative agency's actions, and by explicitly
making the scheme exclusive, Congress intended to exclude
other methods of interfering with the regulatory action.").
Appellants propose the following justification for their con-
clusion that they are "institution-affiliated parties" under 12
U.S.C. s 1818(c)(2). The statute defines "institution-affiliated
party" to include "any director, officer, employee, or control-
ling stockholder (other than a bank holding company) of, or
agent for, an insured depository institution." 12 U.S.C.
s 1813(u). According to appellants, Bank was the only "in-
sured depository institution" affected by the Temporary Or-
der. They assert that Holding Company--the entity named
in the Notice of Charges and served with the Temporary
Order--could not be the "depository institution concerned"
for purposes of the statute, because it is a savings and loan
holding company, not an "insured depository institution" un-
der section 1813(u). Appellants also assert that three of their
number were former officers of Bank. (No such claim was
made in their complaint, which alleges only that appellants
are former officers of Subsidiary.) As "officers, directors,
employees or agents" of Bank, then, appellants claim to be
eligible to bring suit as "institution-affiliated" parties.
We shall assume for purposes of this discussion that appel-
lants were indeed employees of (and "affiliated" with) Bank,
an insured depository institution. Subsection (c)(2), the pro-
vision upon which appellants rely, provides that "the deposito-
ry institution concerned or any institution-affiliated party"
must appeal within ten days after being served with a tempo-
rary cease-and-desist order. In other words, the statute
contemplates that "the depository institution concerned or
any institution-affiliated party" must be served with a tempo-
rary cease-and-desist order in order to challenge it in court
pursuant to subsection (c)(2). In this case, neither appellants
nor Bank were served with the Temporary Order.
Furthermore, OTS commences administrative proceedings
by filing and serving a "notice of charges" on a depository
institution or institution-affiliated party. See 12 U.S.C.
s 1818(b)(1) ("If ... any insured depository institution ... or
any institution-affiliated party is engaging ... in an unsafe or
unsound practice ... the agency may issue and serve upon
the depository institution or such party a notice of charges in
respect thereof."). Neither appellants nor Bank were named
in or served with the Notice of Charges.
Because appellants were not served with (or named in) the
Notice of Charges or the Temporary Order, they are not
institution-affiliated parties as required by subsection (c)(2).
See BLACK'S LAW DICTIONARY 1122 (6th ed. 1990) ("A
'party' to an action is a person whose name is designated on
record as plaintiff or defendant."). Thus, they are statutorily
ineligible to file suit under that subsection.
We reject appellants' attempt to characterize themselves as
"institution-affiliated parties" because they were affiliated
with what they call "the only depository institution con-
cerned" in this case, namely Bank. No matter how profoundly
the Temporary Order may have affected it, Bank could not be
the "depository institution concerned" in this case. Under
subsection (c)(2), a depository institution must have been
served with the notice of charges and the temporary cease-
and-desist order to challenge that order on appeal. See 12
U.S.C. s 1818(c)(2). It is undisputed that Bank met neither
of these statutory prerequisites. Even if Bank were a "de-
pository institution concerned" in this case, however, that
would not alter the fact that appellants were not served with
the Notice of Charges or the Temporary Order, as they must
be to prosecute an appeal under subsection (c)(2).
Appellants also argue that, although subsection (c)(2) uses
the term "depository institution," Holding Company cannot fit
this category because it is a savings and loan holding compa-
ny. This a non sequitur. Not only does the statute provide
that OTS may issue temporary cease-and-desist orders to
"any bank holding company," 12 U.S.C. s 1818(b)(3), we have
already concluded that Holding Company was a proper sub-
ject of the Temporary Order and, as such, entitled to appeal
pursuant to subsection (c)(2). CityFed Fin. Corp., 58 F.3d at
741-43.
B.
Anticipating that the plain language of section 1818(i)(1)
might bar their claims, appellants argue in the alternative
that the district court should have exercised jurisdiction
pursuant to Leedom v. Kyne, 358 U.S. 184 (1958), and its
progeny. Under Kyne, they argue, district courts may re-
view agency action, even when Congress intended otherwise,
if a plaintiff makes a "strong and clear" showing that the
agency has acted contrary to its statutory authority or de-
prived the plaintiff of constitutional rights. McCulloch v.
Libbey-Owens-Ford Glass Co., 403 F.2d 916, 917 (D.C. Cir.
1968). Here, appellants argue that the district court should
have exercised jurisdiction notwithstanding section 1818(i)
because the statutory ban on judicial review allowed a taking
of their property without just compensation in violation of the
Fifth Amendment to the Constitution. In particular, appel-
lants complain that the restrictions of the Temporary Order
forbade Holding Company from disbursing attorney fees and
costs to them, even though the Third Circuit had concluded
that they were entitled to such payments.
In Board of Governors v. MCorp Fin., Inc., the Supreme
Court disallowed a district court's exercise of jurisdiction
under Kyne in a case that involved section 1818(i)'s preclusion
of judicial review. 502 U.S. 32, 44 (1991). MCorp, a bank
holding company, filed a lawsuit against the Board of Gover-
nors of the Federal Reserve System ("Board") that sought to
enjoin the Board's prosecution of two administrative proceed-
ings against it. The district court entered the requested
injunction, and the Board appealed. The Fifth Circuit deter-
mined that the Board had exceeded its statutory authority
when it promulgated one of the regulations MCorp was
charged with violating, and ruled that Kyne authorized the
district court to enjoin the administrative proceedings that
had been conducted purportedly without statutory authoriza-
tion.
The Supreme Court rejected the Fifth Circuit's reading of
Kyne, and ruled that the district court lacked jurisdiction to
enjoin the administrative proceedings pending against
MCorp. The Court concluded that Congress spoke "clearly
and directly" when it enacted section 1818(i). Id. at 44. This
provision, continued the Court, contrasted with the statutory
scheme at issue in Kyne, in which the petitioner had asked
the court to imply preclusion of judicial review from legisla-
tive silence on the point. The Court read Kyne to "stand[ ]
for the familiar proposition that only upon a showing of clear
and convincing evidence of a contrary legislative intent should
the courts restrict access to judicial review," and determined
that section 1818(i) "provides us with clear and convincing
evidence that Congress intended to deny the District Court
jurisdiction to review and enjoin the Board's ongoing adminis-
trative proceedings." Id. (citation and internal punctuation
omitted). The Court further noted that, unlike the petitioner
in Kyne, MCorp had adequate means of review upon a final
determination by the agency. Id. at 43-44.
We conclude that MCorp, not Kyne, controls this case.
First, section 1818(i) unambiguously precludes judicial review.
See MCorp, supra; see also Hindes v. FDIC, 137 F.3d 148,
164 (3rd Cir. 1998) ("emphasiz[ing] that an integral factor in
determining the applicability of the exception is the clarity of
the statutory preclusion"). Appellants also have failed to
make a "strong and clear" showing that the issuance of the
Temporary Order violated their constitutional rights. See
McCulloch, 403 F.2d at 917.
Appellants make the case that the Temporary Order de-
prived them of their right to receive attorney fees and costs
from Holding Company without notice and a hearing; this
action, conclude appellants, violates the Fifth Amendment's
Due Process Clause. It has long been settled, however, that
the Fifth Amendment's Due Process Clause "does not apply
to the indirect adverse effects of government action." O'Ban-
non v. Town Court Nursing Ctr., 447 U.S. 773, 789 (1980).
That provision " 'has always been understood as referring
only to a direct appropriation, and not to consequential
injuries resulting from the exercise of lawful power.' " Id.(emphasis added) (quoting Legal Tender Cases, 79 U.S. 457,
551 (1871)). The Temporary Order was a lawful exercise of
OTS's regulatory authority, see CityFed Fin. Corp, 58 F.3d at
743, that had no direct effect on appellants. It was issued
against Holding Company in order to restrict Holding Com-
pany's use of its assets pending completion of administrative
proceedings that OTS had commenced against Holding Com-
pany. As we have emphasized above, appellants were not
named in the Temporary Order, nor did the Temporary
Order serve to restrict appellants' use of their own assets.
Accordingly, any harm the appellants have suffered from the
issuance of the Temporary Order was a consequential result
of a lawful action OTS directed towards Holding Company,
and therefore was no due process violation.
The Supreme Court has recognized that a person who is
indirectly affected by government action may have a right to
a hearing under limited circumstances: "Conceivably, ... if
the Government were acting against one person for the
purpose of punishing or restraining another, the indirectly
affected individual might have a constitutional right to some
sort of hearing." Town Court, 447 U.S. at 789-90 n.22.
Appellants assert that OTS was indeed targeting them when
it issued the Temporary Order, but this unsupported asser-
tion does not meet the standard of a "strong and clear"
showing of a deprivation of constitutional rights. In any
event, Town Court also observed that parties suffering an
indirect adverse effect of government action "clearly have no
constitutional right to participate in the enforcement proceed-
ings" when the directly regulated party had a "strong finan-
cial incentive to contest [the government's] enforcement deci-
sion." Id. Here, Holding Company, the directly regulated
party, similarly had a strong interest in challenging the
Temporary Order, as evidenced by its separate lawsuit chal-
lenging the order.
Appellants propose another route to judicial review: the
Administrative Procedure Act. They ask us to invalidate the
challenged OTS orders as "arbitrary, capricious, an abuse of
discretion" under the APA. See 5 U.S.C. s 706. However,
the APA does not confer jurisdiction when another statute
denies it. See 5 U.S.C. s 702 ("Nothing herein ... confers
authority to grant relief if any other statute that grants
consent to suit expressly or impliedly forbids the relief which
is sought."). Accordingly, in light of our conclusion that
section 1818(i)(1) precludes judicial review of the Temporary
Order, we reject appellants' APA claims. Accord Henry v.
OTS, 43 F.3d 507, 511-12 (10th Cir. 1994).
III. Conclusion
Because appellants did not meet the statutory require-
ments for filing this lawsuit, the district court lacked jurisdic-
tion to hear it. Accordingly, we affirm the judgment of the
district court dismissing for lack of subject-matter jurisdic-
tion.