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NORTHEAST SAV., F.A. v. DIRECTOR

July 16, 1991

NORTHEAST SAVINGS, F.A., Plaintiff,
v.
DIRECTOR, OFFICE OF THRIFT SUPERVISION, et al., Defendants


Joyce Hens Green, United States District Judge.


The opinion of the court was delivered by: GREEN

JOYCE HENS GREEN, UNITED STATES DISTRICT JUDGE

 Plaintiff, Northeast Savings, F.A. ("Northeast") initiated this action, alleging that defendants' repudiation and abrogation of contractual promises to plaintiff constitute a breach of contract, a taking of plaintiff's property without just compensation in violation of the fifth amendment of the Constitution, and a deprivation of plaintiff's property without due process of law in violation of the fifth amendment to the Constitution. Specifically, Northeast asserts that defendants must accord full capital treatment, for purposes of satisfying Northeast's minimum capital regulatory requirements to (a) supervisory goodwill that appears on Northeast's books as a result of Northeast's 1982 acquisitions of three failed savings and loan institutions, and (b) cumulative preferred stock issued by Northeast and held by the Federal Savings & Loan Insurance Corporation ("FSLIC") Resolution Fund that had been exchanged for an Income Capital Certificate ("ICC") issued by Northeast in connection with one of the mergers.

 On July 10, 1990, Northeast moved for dismissal without prejudice of the FSLIC preferred stock issues, which motion was granted on July 25, 1990. Defendants have also moved to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted, and plaintiff has moved for summary judgment and filed a motion for a preliminary injunction. For the following reasons, defendants' motion to dismiss is granted, and plaintiff's motions are denied as moot.

 I. BACKGROUND

 In the late 1970s and early 1980s, high interest rates and record inflation precipitated a liquidity crisis in the savings and loan ("S & L") industry, and most thrifts experienced large operating losses. Congress, the Federal Home Loan Bank Board ("FHLBB"), and state regulatory authorities responded to this crisis in a number of ways, generally expanding both the scope of permissible thrift investment powers and thrifts' ability to compete with other institutions for funds.

 In response, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183, which provided for the contribution of funds to close insolvent institutions, recapitalized the thrift deposit insurance fund, and modified the regulatory framework within which the industry operates. Specifically, the FIRREA abolished the FSLIC, transferring FSLIC's functions to other agencies; created a new Savings Association Insurance Fund ("SAIF"), under FDIC management, but did not make the FDIC the primary regulator of thrifts; established the FSLIC Resolution Fund, under FDIC management, transferring to it most of FSLIC's assets and liabilities; abolished the FHLBB and established the Office of Thrift Supervision ("OTS") in the Department of the Treasury, making it responsible for examination, supervision, and regulation of all federally insured savings associations and chartering of federal thrifts; established the Resolution Trust Corporation ("RTC"), charged with resolving the cases of thrifts closed between January 1989 and August 1992; and established the Resolution Funding Corporation ("REFCORP") as a vehicle for financing the RTC's activities.

 At the same time that the FIRREA provided public financial support for the thrift industry, FIRREA adopted a number of regulatory reforms designed to prevent a recurrence of the thrift crisis. FIRREA adopted a new subsection 5(t)(1) of the Home Owners' Loan Act ("HOLA"), 48 Stat. 128 (codified as amended at 12 U.S.C. ยงยง 1461 et seq.), which provided that the Director of OTS was to promulgate new regulations prescribing capital standards for thrift institutions by November 7, 1989, to become effective by December 7, 1989. The statute required the regulations to set forth three sorts of capital standards: a "leverage" limit, a "tangible capital" requirement, and a risk-based capital requirement.

 FIRREA's "leverage limit," and OTS's implementing regulation, require savings associations to maintain "core capital" of not less than three percent of the savings association's assets. Core capital is defined to include certain tangible and intangible components of capital other than goodwill, as well as certain "qualifying supervisory goodwill," which is goodwill that existed on an eligible institution's books on April 12, 1989, amortized over a period of twenty years or less. Similarly, FIRREA's "tangible capital" standard, and OTS's implementing regulation, requires thrifts to maintain tangible capital of not less than 1.5% of the thrift's total assets, and tangible capital is defined as core capital less intangible assets such as goodwill.

 In February 1982, the FSLIC, the agency then responsible for insuring deposit accounts at all federally chartered thrifts and some state-chartered institutions, solicited bids from various sources that might be interested in acquiring the Hartford Federal Savings & Loan Association ("Hartford") of Hartford, Connecticut. Schenectady Savings Bank, FSB ("Schenectady") was among the entities that submitted bids to acquire Hartford. Thereafter, the FHLBB, the agency then charged with regulating all federally chartered savings and loans, approved the merger of Schenectady and Hartford and authorized the FSLIC to provide financial assistance to Schenectady.

 Schenectady and Hartford entered into an agreement and plan of merger. The FSLIC and Schenectady entered into an Assistance Agreement providing, inter alia, that the FSLIC would contribute $ 12 million to Schenectady after the merger, as well as up to $ 1.7 million in dividends on certain Federal Home Loan Bank of Boston stock. The merger was consummated on March 12, 1982, and the merged institution was named "Northeast Savings, a Federal Savings and Loan Association."

 Shortly thereafter, Northeast acquired two other S&Ls: Freedom Federal Savings & Loan Association ("Freedom Federal") of Worcester, Massachusetts, and First Federal Savings & Loan Association ("First Federal") of Boston, Massachusetts. In response to a solicitation for bids, Northeast had submitted to FSLIC on June 10, 1982, a proposal for the acquisition of Freedom Federal. On October 8, 1982, the FHLBB approved the merger and authorized FSLIC to provide Northeast financial assistance in two forms: 1) an FSLIC note in the amount of $ 50 million, in return for $ 50 million in Income Capital Certificates ("ICCs") *fn1" issued by Northeast, and 2) cash in an amount equal to the negative net worth of Freedom Federal as shown in Freedom Federal's most recent monthly ...


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