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September 8, 1994

CITYFED FINANCIAL CORP., et al., Plaintiffs,

The opinion of the court was delivered by: GREENE

 Plaintiff CityFed Financial Corporation ("CityFed") has moved for a preliminary injunction enjoining a Temporary Cease and Desist Order ("Temporary Order") issued by the Office of Thrift Supervision ("OTS") on June 2, 1994. In short, the Temporary Order freezes CityFed's liquid assets pending the resolution of an administrative enforcement action filed by the OTS.


 CityFed was created in 1984 as part of the restructuring of City Federal, a federally insured savings institution. CityFed was to be a "shell" corporation, with no assets of its own. The OTS' predecessor, the Federal Home Loan Bank Board ("FHLBB"), allowed CityFed to acquire control of City Federal subject to certain conditions. Specifically, CityFed was to maintain City Federal's regulatory capital in accordance with certain requirements and was to infuse capital into City Federal should the institution fail to meet these requirements. CityFed and the FHLBB entered into the "Net Worth Maintenance Agreement" ("NWMA") to ensure that CityFed would comply with this condition.

 According to the OTS, by November of 1989 CityFed had allowed City Federal's capital to fall $ 118.4 million short of minimum regulatory requirements. On December 6, 1989 the OTS demanded that CityFed comply with the requirements. On December 7, 1989, the OTS declared City Federal insolvent and appointed the Resolution Trust Corporation ("RTC") as the receiver.

 On June 2, 1994 the OTS issued a "notice of charges" stating that it had instituted an administrative enforcement action against CityFed seeking to recover the $ 118.4 million that it failed to infuse into City Federal. It also issued the Temporary Order, which requires CityFed to post a security in the amount of its current assets, which total about $ 9 million. CityFed can comply with this requirement by placing its investments in an escrow account. The Temporary Order permits CityFed to spend $ 15,000 a month for operating expenses. Its current operations consist only of short-term, income-producing investments. Additionally, the Temporary Order contains a "hardship provision," which permits CityFed to petition the Director of the OTS for relief from the Order if the Order results in undue hardship to CityFed.

 CityFed is obligated under its bylaws to advance and indemnify litigation expenses to current and former directors and officers. The plaintiffs-intervenors here are five Directors whose legal fees are currently being disbursed under the bylaws.


 A. Irreparable Harm

 CityFed argues that enforcement of the Temporary Order will cause it irreparable harm in two ways. First, it contends that posting $ 9 million as a security will force CityFed into bankruptcy, as its net worth is only about $ 7.7 million. Second, if $ 9 million of its liquid assets are frozen, it will be unable to advance litigation expenses to its officers. This will result in defaults, and CityFed will be liable for the amounts of those judgments. Along similar lines, the intervenors argue that unless the Temporary Order is enjoined or stayed, they will be unable to defend themselves in the OTS proceeding and in a separate court proceeding under way in New Jersey.

 Neither of these arguments is convincing. Compliance with the Temporary Order will not force CityFed into bankruptcy. First, CityFed can comply with the order by placing the $ 9 million in an escrow account. It will not have to pay over a security in excess of its net worth. Moreover, even if the terms of the Temporary Order would put CityFed in dire financial straits, the Order contains a hardship provision allowing CityFed to petition the OTS for relief from the Order. CityFed should seek relief under this provision before it argues to the Court that enforcement of the Order will cause it irreparable harm.

 The Court also finds that no irreparable harm will result in relation to CityFed's obligation to compensate its directors for their legal fees. The law is settled that the claim of irreparable injury must be "both certain and great; it must be actual and not theoretical." Washington Gas Co. v. FERC, 244 U.S. App. D.C. 349, 758 F.2d 669, 674 (D.C. Cir. 1985). CityFed has pointed to no defaults that will actually issue, and no substantial judgments for which it will certainly be liable. Similarly, the intervenors have not demonstrated that, absent CityFed's advancement of legal fees, they will be unable to defend themselves. Only one Director even asserts that he does not have the resources necessary to pay his defense counsel. Furthermore, the OTS has offered to allow CityFed to advance the directors legal fees providing that the directors guarantee repayment of the advances if the OTS prevails in the underlying action. CityFed has refused this offer. It seems disingenuous to refuse the Agency's proposed resolution and then argue before this Court that the Order prevents CityFed from honoring its obligation to advance legal fees.

 As the Temporary Order will not prevent CityFed's directors from defending themselves in administrative and court actions and the Order will not force CityFed into bankruptcy, the plaintiffs have failed to show that enforcement ...

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