Gibraltar of its property without the opportunity of a hearing, it violates the Fifth Amendment; (5) that Gibraltar was not insolvent prior to the date of the appointment of a receiver; and (6) that if Gibraltar was insolvent on the date of the appointment of a receiver, the insolvency was the result of the actions of the conservator.
In response to both defendants' argument that this Court lacks jurisdiction to hear Gibraltar's "taking" claims, Gibraltar has agreed to have the Court dismiss, without prejudice, the second and third claims for relief. In addition, Gibraltar has also agreed to dismiss, without prejudice, all claims against defendant RTC. Consequently, the Court need only address Gibraltar's first, fourth, fifth, and sixth claims for relief against the OTS.
Upon reviewing the administrative record, the Court finds, for the reasons discussed below, that the first, fourth, fifth, and sixth claims for relief lack merit. The Court, therefore, grants OTS's motion for summary judgment.
1. Statutory Ground for Appointing a Receiver
Gibraltar's first and fifth claims address the same argument, which is whether ground(s) existed for the appointment of a receiver. The Director's basis for appointing a receiver for Gibraltar was that the institution was insolvent. 12 U.S.C. § 1464(d)(2)(C)(i). According to the administrative record, Gibraltar, on August 31, 1989, had a negative regulatory capital of approximately $ 35 million. OTS Memorandum, Exhibit A, Administrative Record, at 1564 ("Admin. Rec.") The administrative record further reveals that the capital position resulted from $ 229 million in losses from the sale of mortgage backed securities ("MBS") and $ 131 million in operating losses. Id. at 1564, 1619, 1663. Thus, defendants contend that the administrative record supported the finding that Gibraltar was insolvent.
In response, Gibraltar makes both a procedural argument and a substantive argument. First, Gibraltar argues that it can not properly formulate a response to the administrative record because it has had no opportunity to engage in discovery in order to challenge the findings in the administrative record. Second, as a substantive matter, Gibraltar does not seriously contest the fact that Gibraltar was insolvent at the time the receiver was appointed. Instead, Gibraltar argues that it was not insolvent when the conservator was appointed and only became insolvent during the time the conservator was in place. Accordingly, Gibraltar argues that the insolvency was the result of the actions of the conservator.
The Court has already addressed Gibraltar's procedural argument. Review of the decision to appoint a receiver is confined to the administrative record. If the administrative record cannot support the Director's decision, then the Court must remove the receiver. Gibraltar cannot defeat summary judgment by arguing that it did not have the opportunity to supplement the administrative record.
It is also important to note that the administrative record consists to a large extent of Gibraltar's own documents. Based upon Gibraltar's own documents, the Director found that Gibraltar was insolvent. It is thus of little consequence that Gibraltar did not have a subsequent opportunity to submit evidence to supplement the administrative record.
Gibraltar's substantive argument also fails to defeat OTS's summary judgment motion. The statutory ground relied upon by the Director for appointing a receiver is that Gibraltar was insolvent. The administrative record supports this finding and Gibraltar does not seriously challenge this finding.
The Court rejects Gibraltar's argument that there is a relevant factual question concerning whether the insolvency was caused by the conservator. At the time a conservator was appointed, Gibraltar had invested heavily in fixed-rate MBS. The administrative record shows that the market value of these securities had fallen substantially because of the rise in interest rates. Admin. Rec. at 302, 878. Because the conservator found that the interest rate risk of these securities could not be offset by a hedging strategy, the conservator sold the MBS securities for a loss of $ 229 million. Id. at 1564, 1619, 1633-36. Although this loss substantially contributed to Gibraltar's insolvency, the Court finds that the government can not be held responsible if its attempted remedial measures failed to prevent Gibraltar from becoming insolvent. As OTS points out in its brief, "it would be most anomalous that if a remedial measure were not successful, the law prohibited further remedial efforts and required that the institution be returned to the original management without regard to the depositors and creditors." OTS Reply Memorandum, at 9. In this case, the administrative record supports the conclusion that Gibraltar's investment decisions were the cause of its financial problems. The Court finds that the conservator's failure to remedy Gibraltar's financial difficulties cannot be a basis for removing an otherwise properly appointed receiver.
2. Gibraltar's Due Process Claim
Gibraltar argues that the appointment of a receiver violated due process because there was no formal evidentiary hearing before or after the appointment. Due process, however, does not require a hearing before the appointment of a receiver, and after appointment, judicial review pursuant to 12 U.S.C. § 1464(d)(2)(E) satisfies due process.
In Fahey v. Mallonee, 332 U.S. 245, 253-54, 91 L. Ed. 2030, 67 S. Ct. 1552 (1947), the Supreme Court rejected plaintiffs' argument that the Constitution requires a pre-appointment hearing. In Fahey, the Supreme Court analyzed the precursor to the present statutory scheme. In rejecting the argument that the lack of a pre-appointment hearing violated due process, the Court stated the following:
It is complained that these regulations provide for hearing after the conservator takes possession instead of before. This is a drastic procedure. But the delicate nature of the institution and the impossibility of preserving credit during an investigation has made it an almost invariable custom to apply supervisory authority in this summary manner. It is a heavy responsibility to be exercised with disinterestedness and restraint, but in light of the history and customs of banking we cannot say it is unconstitutional.
Id. The Court finds that this statement applies equally to the present case.
In addition, as the Court has previously addressed, judicial review, under the arbitrary or capricious standard, that is provided for in 12 U.S.C. § 1464(d)(2)(E), satisfies the post-appointment due process requirement. See supra, [slip op.] at 4-5. As long as the Director's decision to appoint a receiver considered all the relevant factors in determining whether the statutory grounds existed and the decision is not otherwise arbitrary or capricious, due process is satisfied.
3. Gibraltar's Estoppel Claim
This claim asserts that if grounds for a receiver existed, it was the conservator's fault. Accordingly, Gibraltar argues that the government should not be able to "benefit" from the condition it caused by using it to justify the appointment of a receiver. This argument is essentially a repeat of the argument Gibraltar makes with respect to whether statutory grounds existed for the appointment of a receiver. See supra, [slip op.] at 10-11. This argument fares no better as an independent claim for relief.
The statute authorizes the appointment of a receiver when certain grounds exist. Thus, the issue in this case is whether or not the statutory grounds existed. As the Court stated previously, the conservator's failure to remedy Gibraltar's financial difficulties cannot be a basis for removing an otherwise properly appointed receiver.
Furthermore, even if it was proper to apply the doctrine of estoppel to this case, our Court of Appeals has emphasized that the doctrine of estoppel should be applied to the government only in "compelling" circumstances. ATC Petroleum, Inc. v. Sanders, 274 App. D.C. 12, 860 F.2d 1104, 1111 (D.C. Cir. 1988). The Court finds that this case does not present any compelling circumstances for estopping the government from acting.
The Director is authorized to appoint a receiver if the institution is insolvent. In this case, the administrative record fully supports the Director's decision that Gibraltar was insolvent at the time the Receiver was appointed. The Court, therefore, grants OTS's motion for summary judgment.
ORDER - July 26, 1991, Filed
Upon consideration of defendants' motions for summary judgment, plaintiff's opposition thereto, the arguments of counsel in open court and the entire record herein, and for the reasons set forth in the accompanying Memorandum, it is by the Court this 25th, day of July, 1991,
ORDERED that the motion of defendant Office of Thrift Supervision be, and hereby is, granted with respect to plaintiff's first, fourth, fifth, and sixth claims for relief; and it is further
ORDERED that plaintiff's second and third claims for relief and all of plaintiff's claims against the Resolution Trust Company are, at plaintiff's request, dismissed without prejudice.