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CITYFED FIN. CORP. v. FHLBB

August 14, 1985

CITYFED FINANCIAL CORP., Plaintiff,
v.
FEDERAL HOME LOAN BANK BOARD, et al., Defendants



The opinion of the court was delivered by: OBERDORFER

OBERDORFER, U.S.D.J.

 MEMORANDUM

 I.

 Plaintiff CityFed Financial Corp ("CityFed") is a publicly held savings and loan holding company incorporated under Delaware law with total assets in excess of $7 billion. Defendants Federal Home Loan Bank Board ("Board") and the Federal Savings and Loan Insurance Corporation ("FSLIC") are agencies of the United States Government. Defendant George S. Mann ("Mann"), an alien residing in Canada, is chairman of the board of directors and a controlling person of defendants Unicorp Canada Corporation ("UCC") and Unicorp American Corporation ("UAC"), respectively a Canadian management and investment holding company and a Delaware corporation engaged in direct and indirect investment in the United States. Mann, UCC, and UAC are collectively referred to herein as "Unicorp." Unicorp currently owns approximately 13 percent of CityFed shares (including common stock and convertible preferred stock), and seeks to increase its ownership up to 24.99 percent of shares outstanding.

 The Board is the operating head of the FSLIC. As such, it is empowered to administer the provisions of the Change in Savings and Loan Control Act of 1978 ("CSLCA") and the Savings and Loan Holding Company Amendments of 1967 to the National Housing Act ("SLHCA"). *fn1" CityFed claims that the procedures followed by the Board in processing a "Notice in Change of Control" ("Notice") filed pursuant to the CSLCA by Unicorp in connection with its acquisition of CityFed shares were inadequate. CityFed further contends that these deficiencies invalidate the Board's June 28, 1985 determination *fn2" that the period for review of the Notice had expired and that Unicorp could therefore proceed with its proposed acquisition of additional CityFed stock. As a result, CityFed claims, the Board has in effect authorized Unicorp to acquire control of CityFed without adequately investigating allegations that Unicorp has a record of mismanagement and misconduct which, if repeated after gaining control of CityFed, would seriously injure CityFed's depositors and the public generally.

 An Order entered August 6, 1985 invalidated the June 28, 1985 determination by the Board, which determination had the effect of authorizing defendant Unicorp to acquire additional shares of plaintiff CityFed. *fn3" That Order referred to a Memorandum to be filed. This is that Memorandum.

 The CSLCA, the controlling statute in this case, requires a person acquiring a substantial number of shares in a savings and loan institution such as CityFed to file a prescribed notice. *fn4" If the Board fails to disapprove the acquisition within sixty days after the acquirer files a notice deemed "sufficient", the acquirer may proceed.

 The Board has promulgated regulations to implement the CSLCA's provisions. These regulations delegate to the Board's staff responsibility for determining when a notice is complete as well as authority to terminate a review period by declaring an intent not to disapprove an acquisition. *fn5" The Board has reserved to itself authority to disapprove an acquisition. *fn6" Other regulations provide in substance that the 60-day review period will commence at such time as the Board has received a notice which it deems sufficient to satisfy the requirements of 12 C.F.R. § 563.18-2(e)(1). That regulation provides that a notice "shall not be deemed sufficient unless it includes all of the information required by the form prescribed by the Corporation, and any additional relevant information as the Corporation may require by specific request in connection with any particular notice." 12 C.F.R. § 563.18-2(e)(1) (1985). *fn7"

 On October 1, 1984, Unicorp filed a change in control notice regarding CityFed with the Board pursuant to the CSLCA requesting authorization to acquire up to 24.99 percent of CityFed common stock. When the Board (actually the Board's staff acting with delegated authority) rejected the notice as incomplete, Unicorp filed "amended notices" on November 1, 1984, A.R. 011345-011347; January 18, 1985, A.R. 010801-010802; and April 18, 1985, A.R. 010552-010561. At the Board's specific request, Unicorp also filed an executed "Stipulation and Undertaking" relating to the proposed acquisition on June 27, 1985.

 From time to time during this same period, CityFed submitted to the Board information and allegations relating to Unicorp's past practices and present intentions. The Board included much of this information in the record of its proceedings. In general, CityFed questioned whether Unicorp met appropriate standards of competence, experience, and integrity suggested by the CSLCA and urged the Board to disapprove Unicorp's notice, as authorized by 12 U.S.C. § 1730(q)(7). *fn8"

 In the months that followed the filing of the October 1, 1984 Notice, the Board staff notified Unicorp several times that the Notice as submitted and amended did not in the view of the staff satisfy the requirements of Board regulations, and as a result, the 60-day review period would not commence.

 The first such letter was dated October 9, 1984. A.R. 011351. A second letter, dated December 31, 1984, requested further information from Unicorp and stated that "upon the filing of this required information, a determination will be made as to whether the Notice, as amended, is sufficient for purposes of commencing the 60-day period for review." A.R. 010803. On March 8, 1985, the Board staff again advised Unicorp that it required additional information, that the Notice was not deemed complete and that the 60-day period would not commence until the additional information requested was provided. A.R. 010587-010591.

 By this March 8, 1985 letter, the Board staff also requested that Unicorp execute a "Stipulation and Undertaking" (the "Stipulation") along the lines of a draft the staff submitted to Unicorp. The letter stated that the staff would accept the execution of the Stipulation "in lieu of requiring the immediate submission of a detailed business plan which conforms to the requirements of [an earlier communication]." A.R. 010588. Significantly, the staff suggested that Unicorp attach the executed Stipulation under cover of an amended Notice. Thereafter, and up until June 27, 1985, the staff and Unicorp negotiated about the Stipulation. During the course of these negotiations, Unicorp filed two unexecuted, proposed Stipulations. A.R. 010583; A.R. 010545.

 On June 17, 1985, the Board staff advised Unicorp in writing that it was extending, for ten days, the 60-day period allowed for review of a completed Notice. A.R. 010041. The Board took this action without any indication in the administrative record that they had ever notified Unicorp that its Notice had been deemed substantially complete. *fn9" The letter merely described the Notice as "last amended on April 18, 1985." On that date counsel for Unicorp wrote to the Board to transmit an executed amendment No. 3 to the Notice. A.R. at 010566. Unicorp stated in this letter that "[the] amendment responds to the inquiries in your letter of March 8, 1985, except that no Stipulation and Undertaking is filed herewith." A.R. at 010566 (emphasis added).

 On June 27, 1985, Unicorp finally submitted an executed Stipulation and Undertaking to the staff. The June 27 Stipulation and Undertaking, similar in many respects to earlier versions, generally provided that Unicorp must seek approval of the Supervisory Agent of the Federal Home Loan Bank of New York before it could: (1) materially alter or attempt to materially alter CityFed's operations or business; (2) effect or attempt to effect a corporate reorganization of CityFed; or (3) seek to control the election of a majority of the Board of Directors. A.R. 010005A-010005B. On the following day, June 28, 1985, the Board staff notified Unicorp by letter that the 60-day period for review of its Notice had expired and, accordingly, Unicorp could proceed to acquire additional shares of CityFed. A.R. 010000.

 II.

 CityFed contends here that the June 27, 1985 Stipulation and Undertaking constituted "additional information . . . required for review of the notice" under 12 C.F.R. § 563.18-2(e)(3), and as such its filing should have caused the 60-day review period to recommence, thus precluding Unicorp from further acquisitions for 60 days from June 27 or until the Board announced an intent not to disapprove the acquisitions. *fn10" Plaintiff further contends that:

 (1) a May 23, 1985 submission which it made to the Board *fn11" and an inquiry made by the Board on June 25, 1985 to Canadian authorities *fn12" ...


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