Advanta Bank v. F.D.I.C., 684 F.Supp.2d 17 (2010)

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684 F.Supp.2d 17United States District Court,

District of Columbia.

ADVANTA BANK, Plaintiff,v.

FEDERAL DEPOSIT INSURANCECORPORATION, Defendant.

Civil Action No. 09–2423(JMF).|

Feb. 16, 2010.|

Opinion Denying Stay Feb. 24, 2010.

SynopsisBackground: Bank brought action against FederalDeposit Insurance Corporation (FDIC), seekingjudicial review of FDIC's issuance of temporary ceaseand desist order to prevent bank from engaging intransactions with its affiliates, causing dissipation ofbank's assets. Bank moved for temporary restrainingorder or permanent injunction.

[Holding:] The District Court, John M. Facciola,United States Magistrate Judge, held that process ofterminating bank's insurance and winding up its affairs,and not unsafe or unsound banking practices, wascause of dissipation of bank's assets.

Motion granted.

FDIC's motion for stay pending appeal denied.

West Headnotes (2)

[1] Banks and BankingPowers, functions and dealings in

general

Process of terminating bank's insurance,which Federal Deposit InsuranceCorporation (FDIC) had initiated, andwinding up bank's affairs, rather thanany unsafe or unsound banking practice,

was cause of dissipation of bank's assets,and thus FDIC exceeded its statutoryauthority by waiting until process wasnearly complete to attempt to interveneand stop it by issuing temporary cease anddesist order; FDIC had given bank choiceof either beginning community bankingor terminating its insurance and windingup its affairs, and bank simply chosetermination and began returning money toits depositors. Federal Deposit InsuranceAct, § 2[8], 12 U.S.C.A. § 1818(c)(1).

Cases that cite this headnote

[2] Federal CourtsOther particular cases

Following district court's determinationthat Federal Deposit InsuranceCorporation (FDIC) exceeded itsstatutory authority by issuing temporarycease and desist order to prevent bankfrom engaging in transactions with itsaffiliates, because process of terminatingbank's insurance, which FDIC hadinitiated, was cause of dissipation ofbank's assets, stay pending FDIC's appealwas not warranted; FDIC had lowlikelihood of success on the merits,issuance of stay would be highlyprejudicial to bank, since it would beprevented from doing what it couldotherwise do but for illegal authorityasserted by FDIC, and there was publicinterest in conserving taxpayer's money.Federal Deposit Insurance Act, § 2[8], 12U.S.C.A. § 1818(c).

Cases that cite this headnote

Attorneys and Law Firms

*18 Andrew L. Sandler, Buckleysandler, LLP,Washington, DC, for Plaintiff.

Thomas L. Holzman, Federal Deposit InsuranceCorporation, Arlington, VA, for Defendant.

Advanta Bank v. F.D.I.C., 684 F.Supp.2d 17 (2010)

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FINDINGS OF FACT ANDCONCLUSIONS OF LAW

JOHN M. FACCIOLA, United States MagistrateJudge.

This case was referred to me for all purposes. Currentlypending and ready for resolution is Plaintiff'sMotion for a Temporary Restraining Order and/orPreliminary Injunction [# 3]. For the reasons statedbelow, the motion will be granted.

STATEMENT OF MATERIAL FACTSAS TO WHICH THERE IS NO DISPUTE

1. This case involves four related entities—AdvantaCorp. is the parent company which owns AdvantaBank Holding Company (“Holding Company”).The Holding Company owns 100% of the sharesof Advanta Bank (the “Bank”), the plaintiff. TheBank is affiliated with Advanta Bank Corp., Draper,Utah (“ABC”), an industrial bank whose primarybusiness is issuing and servicing credit cards tosmall businesses. ABC is a first-tier subsidiary ofAdvanta Corp., the Bank is a second tier subsidiaryof Advanta Corp.

2. As of September 30, 2009, Advanta Corp. had$2,082,899,000 in deposits, *19 $2,497,897,000in assets, and $2,465,936,000 in total liabilities.Its year to date net income was negative$482,459,000. Declaration of Julie D. Howland(“Howland Decl.”), ¶ 9.

3. As of September 30, 2009, ABC had$2,092,114,000 in deposits, $2,284,186,000 intotal assets and a Tier 1 Leverage Capital Ratio of3.73%. Id. at ¶ 8.

4. As of September 30, 2009, the Bank had$10,330,000 in deposits, $21,813,000 in totalassets and a Tier 1 Leverage Capital Ratio of39.39%. On November 30, 2009, the Bank'stotal deposits were $268,404 and its total assetsequaled $10,249,951. Id. at ¶ 7. This indicateda reduction between September 30, 2009 andNovember 30, 2009 of $10,061,596 in deposits

and of $11,563,049 in assets at the Bank. Id. Inan application to terminate insurance received bythe FDIC on January 13, 2010, the Bank indicatedthat it had divested itself of its remaining depositsand had approximately $10 million in assets. Id.at ¶ 7. The termination process which beganin January will be completed June 30, 2010, atwhich point the Bank will no longer be insured bythe FDIC.

5. In 2007, the Bank converted to a state-charterednonmember bank. The Bank does not operateas a community bank; its primary activity is toprovide deposit services for affiliate companies.According to a Report of Examination of theBank, as of December 31, 2008, the FDIC wasconcerned that the Bank lacked any apparentplans for profitable operations and advised that“Management must either formulate a plan foroffering banking activities to the public or submita plan for voluntary liquidation and terminationof deposit insurance.” Id. at ¶ 5.

6. After deducting Bank and ABC assets andliabilities from Advanta Corp.'s accounts, there is$210 million dollars in Advanta only assets and$213 million in Advanta only debt. Id. at ¶ 9.

7. The Boards of Directors of the four entities areinterlocking and have significant overlap. Four ofthe six directors of the Bank are inside directorswho are executive officers or directors of AdvantaCorp. Three of these four directors were alsodirectors of ABC until November 13, 2009. Id. at¶¶ 10–11. These directors resigned from ABC onNovember 13, 2009 at the request of the FDIC dueto the FDIC's concerns about conflicting loyalties.Id. at ¶ 18.

8. In May of 2009, Advanta closed ABC creditcards to new transactions as a result of earlyamortization on a securitization trust, and ABCceased issuing new credit cards. This resulted insignificant liquidity problems for ABC. Id. at ¶13.

9. In June 2009, the FDIC and ABC stipulated to aCease and Desist Order (“ABC Order”) requiringABC to maintain its Tier 1 Leverage Capital Ratioat a minimum of five percent. In compliance withthis order, ABC advised the FDIC in October

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2009 that its Tier 1 Leverage Capital Ratio was3.73% as of September 30, 2009. Id. at ¶ 14. TheFDIC ordered ABC to submit a capital restorationplan, which ABC refused to do. Id. at ¶ 18.

10. On November 8, 2009, Advanta and severalsubsidiaries, but not ABC or the Bank, fileda voluntary petition for reorganization underChapter 11 of the United States Bankruptcy Code.Id. at ¶ 16.

11. On November 13, 2009, the FDIC was advisedthat Advanta would disaffirm a tax-sharingagreement with *20 ABC, which could haveresulted in a $65 million payment to ABCand adequately capitalized ABC. At the samemeeting, ABC suggested that the FDIC placeABC in receivership. Id. at ¶ 18.

12. ABC and the Bank both remain open. Therisk posed to the Insurance Fund by ABC could,however, total several hundred million dollarsdue to the extremely high losses in its credit cardportfolio. Id. at ¶ 19. Under the provisions of 12U.S.C. § 1815(e), moneys remaining in the Bankat the time of the potential failure of ABC wouldbe used to guarantee the deposits in ABC.

13. On November 19, 2009, the FDIC proposed thatthe Bank stipulate to a Cease and Desist order,which would restrict transactions between theBank and Advanta and its affiliates and prohibitthe payment of dividends. This order reflectedthe FDIC's concern about the interlockingmanagement between Advanta and the Bank andthe failure of the same directors to uphold theirduties of care and loyalty to ABC. Id. at ¶ 21.The Bank rejected this stipulation pursuant toadvice of counsel because of the Bankruptcyproceedings underway for Advanta Corp. Id. at ¶22.

14. During a review of the Uniform BankPerformance Report filed by the Bank, the FDICCase Manager and an FDIC Examiner noticedthat two questionable transactions had taken placebetween June 30, 2009 and September 30, 2009.Id. at ¶ 26. The Bank had reduced its liabilitiesby $5.3 million and had booked a tax-expenseprovision of $2.6 million. Id. These transactionswere unusual due to “the size and nature of the

Bank's activities.” Id. The FDIC has attempted togather an explanation via interviews and reviewof documents and has received no satisfactoryexplanation. Id.

15. Julie D. Howland, Assistant Regional Director,FDIC, and responsible for supervision of theBank, recommended issuing a Temporary Ceaseand Desist Order to prevent the Bank fromengaging in transactions with Advanta and otheraffiliates, which would cause dissipation of assetsof the Bank. Id. at ¶ 27–30. She premised herrecommendation on 1) the conflicts of interestsof the interlocking directors of Advanta and theBank, 2) the inability of the Bank to performindependent reviews and provide explanationsof the irregular transactions, and 3) the Bank'sfailure to maintain adequate books and records.

16. The FDIC issued the Temporary Cease andDesist Order to the Bank on December 17, 2009

pursuant to 12 U.S.C. § 1818(c). 1

17. The Bank responded with the instant litigationpursuant to its right under 12 U.S.C. § 1818(c)(2) toseek judicial review of the issuance of a TemporaryCease and Desist Order. The motion for a temporaryrestraining order or permanent injunction of theFDIC was briefed and oral argument was held onJanuary 20, 2010. All parties agree that the caseis ripe for adjudication and a final decision on theissuance of an injunction.

CONCLUSIONS OF LAW

Section 8(b) of the Federal Deposit Insurance Act(“FDIA”), codified at 12 U.S.C. § 1818(b), grantsFederal banking agencies the power to issue ceaseand desist orders if the agency has “reasonable *21cause to believe that the depository institution [is] ...about to engage in an unsafe or unsound practice ... isviolating or has violated ... a law, rule or regulation.”12 U.S.C. § 1818(b)(1). Such an order is accompaniedby notice of a hearing to be held not earlier than 30or less than 60 days after service of the notice. Theorder becomes effective at the expiration of the 30–dayperiod and remains effective until the conclusion ofthe administrative proceeding. Because some instancesrequire regulatory action faster than the administrativeprocess can accommodate, Congress also granted the

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Federal banking agencies the authority to issue atemporary cease and desist order. 12 U.S.C. § 1818(c)

(1). 2 These temporary orders become effective uponservice on the financial institution and remain in placeuntil the conclusion of the administrative process.The FDIC issued a temporary cease and desist orderbecause Advanta Bank refused to stipulate to a ceaseand desist order and because of the risk that any moneyin the Bank would be “upstreamed” to the bankruptparent company to be used to pay off creditors insteadof being held by the Bank and made available to crossguarantee the losses of ABC in the event it fails. Thequestion before the court today is whether the issuanceof that order exceeded the FDIC's authority granted byCongress in § 1818.

I. FDIA § 8(c)

The issuance of a cease and desist order under§ 1818(b) is accompanied by a decision by aneutral arbiter determining whether the conduct of thedepository institution was legitimate. Orders issuedunder § 1818(b) do not become binding until theconclusion of an administrative hearing. On the otherhand, temporary cease and desist orders issued under§ 1818(c) are binding upon service on the financialinstitution and remain in effect until the conclusionof the administrative process. Thus, a depositoryinstitution is bound by the conclusion of its adversary(in this case the FDIC) that it has or is about toengage in unsafe or unsound banking practices withoutneutral adjudication of that decision. Because of this,§ 1818(c)(2) allows the institution to go to DistrictCourt to seek an injunction whenever the FDIC issuessuch a temporary cease and desist order. Thus, therequirements of § 1818(c) for the issuance of atemporary cease and desist order are stricter than thosein § 1818(b).

The report from the Senate Committee on Banking andCurrency to accompany the passage of the FinancialInstitutions Supervisory Act of 1966 explicitly notesthat the FDIC must be reasonable in its determinationthat the threatened insolvency or dissipation of assetsbe likely. In discussing subsection (c)(1) the reportnotes that

The appropriate Federallending agency would havediscretionary authority to issue

such an order whenever itdetermined that the violationsor threatened violations orpractices, or the continuationthereof, are likely to causeinsolvency *22 or substantialdissipation of assets orearnings of the bank, or arelikely to otherwise seriouslyprejudice the interests of itsdepositors.... The change inthe language of the originalbill from ‘could cause’ to‘is likely to cause’ insolvencyor substantial dissipation ofassets or earnings, or ‘islikely to’ otherwise seriouslyprejudice the interests ofdepositors, is designed toreflect the Committee's intentthat the possibility of suchconsequences be a reasonableone and not merely a theoreticalone.

S.Rep. No. 1482, 89th Cong., 2d Sess. (1966), at 22,U.S.Code Cong. & Admin.News 1966 at 3532, 3553.

Because Congress was aware that the power it wasgranting to Federal banking agencies was a broadand extreme authority, the threshold requirements formeeting that bar were intentionally modified from“could cause” to “is likely to cause.” The questionbefore the court is whether the present facts meet thatthreshold.

The statute itself does not specify the standard bywhich the FDIC's exercise of its power to issue acease and desist order, effective upon service, is to bejudged. The Court is bound by the principle of statutory

interpretation that each word in the statute matters 3

and that it must therefore appear that the Bank's actionsare likely to cause insolvency or substantial dissipationof assets.

The legislative history of the statute states that “[i]nruling on any such application, the district courtswill, of course, be guided by the traditional testsemployed in actions for temporary or preliminary

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relief from administrative agency action when thepublic interest is involved.” S.Rep. No. 1482, 89thCong., 2d Sess. (1966), at 22. But, there is little in theway of precedent in the interpretation of § 1818(c).Challenges to the issuances of temporary orders arerare, and injunctions setting them aside even more so.Two other district courts faced with the interpretationof the same section have concluded that it must beread disjunctively. Paul v. Office of Thrift Supervision,763 F.Supp. 568, 573 (S.D.Fla.1990); Mid AmericaBancorporation v. Board of Governors, 523 F.Supp.568, 576–78 (D.Minn.1980). That is to say, the “or”separating the requirements indicates that each of themmust be read separately. Thus, the FDIC has theauthority to issue a temporary order in situations wherethe actions of the financial institution are likely tocause:

(a) insolvency; or

(b) significant dissipation of assets; or

(c) weaken the condition of the institution; or

(d) otherwise prejudice its depositors.

12 U.S.C. § 1818(c)(1).

II. Application to the Present Case[1] The Bank contends that absent any harm to its

depositors (not the depositors of ABC or any otherentity) the application of the statute is inappropriate.All parties agree that the Bank is not going to fail andthat the depositors of the Bank are not at risk. However,such a reading ignores the “or” within § 1818(c). Thefact that the dissipation of assets will not necessarilyharm the depositors of the Bank does not mean that theassets will not be dissipated, nor does it mean that thestatute cannot be applied for that reason.

This, however, does not end the inquiry. Thelanguage of the statute and the intent of Congress asdemonstrated by the Committee report is quite clear:temporary cease and desist order are only to be issuedupon a finding that the continuation of unsafe orunsound banking practices *23 must be the actionwhich “is likely to cause ... [the] ... dissipation ofassets or earnings of the depository institution.” 12U.S.C. § 1818(c)(1). This was the specific languagewhich Congress changed from the draft versions of

the legislation to the one which was ultimately passed.Congress sought to ensure that the causation of thedissipation of assets was closely linked to the conductin question, not merely a theoretical consequence ofthat conduct.

The Notice of Charges accompanying the temporarycease and desist order, along with the declaration ofMs. Howland, specify what the FDIC believes areunsafe or unsound banking practices. The lack ofindependence of the Directors and their conflictingloyalties to both Advanta Corp., the bankrupt parentcompany, and the Bank have made it impossible forthem to prioritize the interests of the Bank ahead ofthe parent company. This was the reason the Directorswere removed from the ABC Board by the FDIC, andit helps to explain the failure of ABC, which threatensto leave the FDIC vulnerable to claims for hundreds ofmillions of dollars.

The Notice of Charges, however, does not indicatethat the termination of the Bank itself is an unsafeor unsound practice, nor could it. The Bank was toldby the FDIC that it either needed to formulate a planto become profitable (i.e. begin community banking)or close and terminate its insurance. Given the choicebetween the two, the bank chose termination and beganthe process of returning money to its depositors andotherwise winding up its affairs. The FDIC cannot askthe Bank to begin termination, and then declare thattermination, once it begins and nears its conclusion, isan unsafe or unsound banking practice. Nor does theFDIC claim that the unsafe banking practices (i.e., theconflicting duties of the Board of Directors) caused thetermination. Thus, it is not the unsafe banking practiceswhich are causing the dissipation of assets, but ratherthe process of termination, which the FDIC started,

which are “dissipating” the assets. Under the statute,the FDIC can only issue a temporary cease and desistorder where the possibility of the dissipation of assetsis more than a theoretical consequence of the unsafe orunsound practice. Here the assets are being dissipatedbecause the FDIC asked the bank to liquidate andterminate its insurance. While the liquidation (and thusthe dissipation of assets) may, theoretically, be linkedsomehow to the unsafe or unsound practice, the statuteand Congress, which passed it, require more. Thus, theFDIC acted outside the clear boundaries of § 1818(c)'s

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grant of authority in issuing the temporary cease anddesist order.

The FDIC had entered into its cease and desistagreement with ABC in June of 2009 and knew ofthe relationships between ABC, the Bank and AdvantaCorp. prior to the transmittal letter dated July 6, 2009requiring the Bank to terminate its insurance and windup its affairs. At that time, the FDIC could have workedto ensure that any money in the Bank be preserved inorder to insure against losses at ABC, but it did not.Instead, it waited until a process that it helped to startwas nearly complete to attempt to intervene and stop it,and, in doing so, exceeded its statutory authority. Thedeference due to the agency in interpreting § 1818(c) isnot limitless and does not allow for the contraventionof the law which gave that agency its authority.

Because the agency's issuance of a temporary ceaseand desist order was outside the bounds of a cleargrant of authority from Congress, the plaintiff's motionfor an injunction setting aside the temporary *24cease and desist order pursuant to § 1818(c)(2) mustbe granted.

An Order accompanies these Findings of Fact andConclusions of Law.

MEMORANDUM OPINION

Currently pending and ready for resolution is theFederal Deposit Insurance Corporation's Motion forStay Pending Appeal and Supporting Memorandum ofPoints and Authorities [# 16] (“Motion for Stay”). Forthe reasons stated below, the motion will be denied.

BACKGROUND

On December 17, 2009, the Federal Deposit InsuranceCorporation (“FDIC”) issued a Temporary Ceaseand Desist Order (“Temporary Order”) to AdvantaBank (“Bank”). Advanta Bank is a Delaware-charteredbank. The Temporary Order alleged that the Bank wasengaging in or about to engage in unsafe or unsoundbanking practices which threatened to dissipate theassets of the institution. Declaration of Julie D.Howland ¶ 25[# 12] (“Howland Decl.”) (“In my

opinion the Bank is engaged in unsafe and unsoundbanking practices in that the Bank Board lacksnecessary independence from the Bank's bankruptparent holding company and that the Bank's InsideDirectors have a conflict of interest which they havedemonstrated when directing the affairs of the Bankand/or [Advanta Bank Corp., Draper Utah (“ABC”) ],and placed the priorities of the bankrupt Advanta

above the priorities of its bank subsidiaries.”). 1

After receiving the Temporary Order, the Bankfiled Plaintiff's Motion for a Temporary RestrainingOrder and/or Preliminary Injunction [# 3] (“Plaintiff'sMotion”) asking the Court to enjoin the FDIC fromenforcing the Temporary Order. After the matter wasbriefed by both parties, the Court held a hearing onJanuary 21, 2010, where all parties agreed that thematter was ripe for adjudication and that the courtshould issue a final decision.

On February 16, 2010, I issued an order enjoining theFDIC from enforcing the Temporary Order becausethe issuance of the Temporary Order was outsidethe statutory authority of the FDIC as expressed byCongress. See Order [# 13] (2/16/10). I found thatthe FDIC had authority to issue a Temporary Order

pursuant to 12 U.S.C. § 1818(c)(1) 2 only in caseswhere the alleged unsafe or unsound banking practiceswere likely to cause the dissipation of assets, whichthe FDIC sought to prevent. I concluded that, in thepresent case, the dissipation of the Bank's assets wasnot the result of the alleged unsafe or unsound bankingpractices, but instead was a result of the liquidationof the Bank's assets and termination of its depositinsurance, a process that the FDIC had requested theBank to undertake. Findings of Fact and Conclusionsof Law [# 14] (2/16/10) at 9–11. I concluded that theFDIC's issuance of the Temporary Order was beyondthe scope of its statutory authority.

On the same day the Court enjoined the FDIC fromenforcing the Temporary Order, the FDIC filed itsmotion for a stay. The Bank has filed its responsebrief as requested by the Court. I now deny the FDIC'smotion.

*25 DISCUSSION

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I. Legal Standard for Issuance of a Stay PendingAppealLast year the Supreme Court described the “traditionalstandards” for the issuance of a stay pending appealas follows: “(1) whether the stay applicant has madea strong showing that he is likely to succeed on themerits; (2) whether the applicant will be irreparablyinjured absent a stay; (3) whether the issuance of thestay will substantially injure the other parties interestedin the proceeding; and (4) where the public interestlies.” Nken v. Holder, 556 U.S. 418, ––––, 129 S.Ct.1749, 1756, 173 L.Ed.2d 550 (2009). The first twofactors, likelihood of success on the merits and theinjury to be suffered, are the critical factors. Id. at 1761.See also id. at 1763 (Kennedy, J., concurring) (“Thisis not to say that demonstration of irreparable harm,without more, is sufficient to justify a stay of removal.The Court has held that ‘[a] stay is not a matter of right,even if irreparable injury might otherwise result.’ ”)(citing Va. Ry. Co. v. United States, 272 U.S. 658, 672,47 S.Ct. 222, 71 L.Ed. 463 (1926)).

In ruling on the entitlement to a preliminaryinjunction or stay pending appeal, the court ofappeals has emphasized that the traditional factors are“typically evaluated on a ‘sliding scale.’ ” Davis v.Pension Benefit Guar. Corp., 571 F.3d 1288, 1291(D.C.Cir.2009) (quoting Davenport v. Int'l Bhd. ofTeamsters, 166 F.3d 356, 361 (D.C.Cir.2009)). Whilea strong argument in favor of one factor may excusea relatively weaker showing on another factor, itmust be recalled that the court of appeals framed theissue as follows: “Has the petitioner made a strongshowing that it is likely to prevail on the merits ofits appeal? Without such ‘substantial indication ofprobable success [on the merits], there would be nojustification for the court's intrusion into the ordinaryprocesses of administration and judicial review.”Wash. Metro. Area Transit Comm'n v. Holiday Tours,Inc., 559 F.2d 841, 843 (D.C.Cir.1977); see Davis, 571F.3d at 1292 (“But Holiday Tours did not eliminatethe other factors. The court simply acknowledged thata lessor likelihood of success might suffice if eachof the other three factors clearly favors granting theinjunction.”).

II. Analysis

A. Likelihood of Success on the Merits[2] The FDIC argues that it is likely to succeed on

the merits for two main reasons. First, it asserts that theCourt erred in granting the injunction because it did notconsider all of the required factors for doing so, onlythe likelihood of success on the merits. Motion for Stayat 3. But, as the Bank points out, all parties agreed thatthis issue was ripe for a final adjudication, not merelyan order on the request for a preliminary injunction.Bank's Opposition at 5 (“The standards applicableto a decision on a preliminary injunction, includingthe requirement that movant demonstrate a substantiallikelihood of irreparable harm, are not applicable toa decision on the merits.”). While a transcript of thehearing the court held has not been filed, I specificallyrecall that I began the hearing by asking counselwhether they agreed that I should proceed to the finalmerits and that it was unnecessary to consider theapplication as one for a temporary restraining orderto be followed by a second hearing on an applicationfor a preliminary injunction. Both counsel agreed thatI should proceed to final judgment, which is exactlywhat I did. Thus, in the Order, the Court did not issuea preliminary injunction or temporary order. Instead,the Court “enjoined and prohibited” the FDIC fromenforcing the Temporary Order against the plaintiff.Order [# 13] *26 (2/16/10). Additionally, the Clerk ofthe Court issued a final judgment. Judgment in a CivilCase [# 18]. In other words, I viewed the matter asmutual motions for summary judgment on agreed uponfacts and I entered judgment for the plaintiff. There,my responsibility began and ended. Whether eitherparty had shown there was a likelihood of success onthe merits, likelihood of substantial irreparable injury,or anything else was therefore irrelevant to my analysisof which party was entitled to final judgment.

The second argument the FDIC makes is that thefactual underpinnings of the decision were faulty andthat the Court misapprehended the sequence of eventssurrounding the issuance of the Temporary Order.Motion for Stay at 3–4. The FDIC asserts that, becauseit issued the Temporary Order in December, 2009 anddid not receive the Bank's application for terminationof insurance until January 13, 2010, the TemporaryOrder was issued prior to the termination process. Id.at 4. Under this view, any action taken by the Bankprior to January 13, 2010 could not possibly have beenpart of the liquidation and termination of the insurance.

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This interpretation of the sequence of events howeverfails to capture the reality of the Bank's intentions andthe FDIC's knowledge of those intentions well beforethe January 13, 2010 application.

The Bank submitted two separate affidavits indicatingthat it was decreasing its deposits beginning in May2009 and that the FDIC was aware of the Bank'sintention to terminate its insurance in October of 2009.Plaintiff's Motion, Attachment 5 ¶¶ 3–6 (Declarationof Michael Coco ) and Bank's Opposition, Attachment1 ¶¶ 3–8 (Declaration of Jay Dubow ). Additionally,the Howland Declaration indicates that the FDICrequested that the Bank either liquidate and terminateits insurance or begin offering banking services to thepublic in a letter dated July 6, 2009. Howland Decl.¶ 5. The Bank reduced its deposits between May 30,2009 and September 30, 2009 by approximately $19million and the Bank's Board resolved to liquidate andadopted a formal plan for liquidation on October 7,2009. Bank's Opposition at 5–6. For the FDIC to nowargue that no action prior to January 13, 2010 can berelated to the liquidation and termination of insurancemisapprehends the reality of the process that beganmonths before the January, 2010 application. In anyevent, whether or when the FDIC had notice of theBank's intention to liquidate had nothing whatsoeverto do with whether the Temporary Order exceeded itsstatutory authority.

Finally, the FDIC contends that the failure of the Bankto maintain proper records is enough for the courtof appeals to find that the Court's Order enjoiningthe Temporary Order should be overturned becausethat failure is a cause of the dissipation of the assets.Motion for Stay at 5. The FDIC believes that twoquestionable transactions took place and that, whileit could ascertain how they happened, it is unable todiscover why because of the failure of the Bank tomaintain adequate records. Id.

Even assuming that this is correct, the FDIC has failedto demonstrate that these transactions were the cause of

the dissipation of assets. Absent some new evidence 3

to the contrary, which the FDIC has not provided, itappears that the dissipation of assets at the bank wascaused by *27 the Bank's decision, at the FDIC'sbehest, to liquidate and terminate its insurance and notby the Bank's failure to maintain records pertaining

to the two questionable transactions. Thus, I find thatthe FDIC is not likely to succeed on the merits. Ithas offered no new arguments as to why its statutoryauthority would allow it to issue the Temporary Orderin this case and has offered no new evidence thatthe alleged unsafe or unsound practices, and not theprocess of liquidation and termination, were the causeof the dissipation of the Bank's assets.

B. Likelihood of Irreparable InjuryThe FDIC further contends that the likelihood ofirreparable injury here is very great. Motion for Stayat 6. It bases this injury on the prospect of anotherbank, ABC, failing and costing the Insurance Fundhundreds of millions of dollars. If the Temporary Orderis enjoined and the stay pending appeal is denied, anyremaining assets in the Bank will be upstreamed tothe bankrupt parent company and will no longer beavailable to cross-guarantee the losses at ABC. Id.

Because the harm in this case is economic, theFDIC must show either that the economic harmwould threaten the existence of its business or thatthe moneys lost as a result of the lack of a staywould be unrecoverable. See, e.g., Wis. Gas Co. v.Fed. Energy Regulatory Comm'n, 758 F.2d 669, 674(D.C.Cir.1985) (“The key word in this considerationis irreparable. Mere injuries, however substantial, interms of money, time and energy necessarily expendedin the absence of a stay are not enough. The possibilitythat adequate compensatory or other corrective reliefwill be available at a later date, in the ordinarycourse of litigation weighs heavily against a claimof irreparable harm.”) (citing Va. Petroleum JobbersAss'n v. Fed. Power Comm'n, 259 F.2d 921, 925(D.C.Cir.1958) (per curiam). The judges of this Courthave frequently concluded that insolvency to paya damage award may constitute irreparable harm.Carabillo v. ULLICO Inc. Pension Plan and Trust,355 F.Supp.2d 49, 55 (D.D.C.2004) (“economic lossmay constitute irreparable harm where defendantwould become insolvent or otherwise judgment-proofprior to the conclusion of litigation thus making theplaintiff's alleged damages unrecoverable”); Foltz v.U.S. News and World Report, Inc., 613 F.Supp. 634,643 (D.D.C.1985) (concluding that the unavailabilityof assets to pay a damage award would irreparablyinjure the plaintiffs).

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In this case, the liquidation of the Bank and thebankruptcy of the parent company would renderthe Bank judgment proof. If, in the process ofthe liquidation of the Bank, the remaining assetsare transferred to the bankrupt parent company, thelikelihood of the FDIC being able to recover thoseassets is very low.

If the economic harm is indeed irreparable, the FDIC'smeasurement of that harm is, however, inaccurate.The FDIC characterizes the amount of harm as in thehundreds of millions of dollars because that is theamount which the Insurance Fund may have to coverif ABC fails. However, this amount is not the propermeasure of harm in this case. The harm to the InsuranceFund resulting from the Court's Order can only bemeasured by the amount of money dissipated fromthe Bank as a result of unsafe or unsound practices.Even if the FDIC is correct and the decisions bythe Board and the Bank to liquidate and to returnmoney to depositors were illegitimate decisions madeby parties with conflicts of interest, the amount ofmoney available to cross-guarantee the losses at ABCis not near the total amount ABC threatens to lose andcost the Insurance Fund. Nevertheless, while the harmis not as great as *28 FDIC claims, the likelihood thatit will become at best another creditor in bankruptcy ofan insolvent bank establishes a sufficient showing ofirreparable harm.

C. Harm to Other Interested PartiesFrom an economic point of view, the harm to theBank from a stay could be described as minimal ornonexistent because it merely maintains the situationthat has been in place since the Temporary Orderwas issued in December until the FDIC hearing isheld in April. But, it is impossible to ignore thatissuing a stay would grant the FDIC permission to doin the interim the very thing that I found it lackedthe authority to do in the first place. As the Banknotes, taken to its logical conclusion, this basicallyallows the FDIC to act outside its statutory authorityprovided it is not causing irreparable harm to theinstitutions it is regulating. See Bank's Opposition at4. Granting a stay severely prejudices the Bank byeliminating any recourse the Bank would have againstthe FDIC's illegal exercise of authority. This cannotbe the case. The legality of the government's actions

do not turn on the amount of harm it causes, butinstead on the expressed boundaries of authority givento the agency by Congress. Accepting the argumentthat preventing the Bank from doing what it hadthe right to do is harmless because the prejudicecaused it by the governmental usurpation is “merelyeconomic” and therefore not “irreparable” eliminatesthe statutory check that Congress created on the FDIC'sauthority. What is supposed to be a rare “intrusioninto the ordinary processes of administration and

judicial review” 4 would be commonplace, as long asa government agency could do exactly what it wasnot authorized to do while at the same time justify itscontinued usurpation on the spurious grounds that thestatus quo was being maintained during the appealsprocess.

D. The Public's InterestThe public has an obvious interest in not paying forthe mismanagement of failed banks any more than italready is. On the other hand, the public has at leastan equal interest in restraining federal agencies to thelimits Congress has set. Thus, evaluation of this factorrests in equipoise.

CONCLUSION

Considering the appropriate factors, I find first that,while threatened with irreparable harm, the FDIC hasa low likelihood of success on the merits. Second, theissuance of the stay would be highly prejudicial to theBank since it is being prevented from doing what itcould otherwise do but for the illegal authority assertedby the FDIC. Finally, although the public interest inconserving taxpayer's money is equal to the interestin restraining FDIC to the limits on its authority thatCongress set, I nevertheless conclude that the lowlikelihood of success on the merits coupled with theprejudice that the Bank would suffer warrant denyingthe stay.

An Order accompanies this Memorandum Opinion.

All Citations

684 F.Supp.2d 17

Advanta Bank v. F.D.I.C., 684 F.Supp.2d 17 (2010)

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Footnotes1 All references to the United States Code are to the electronic versions in Westlaw or Lexis.

2 The text of § 1818(c)(1) reads as follows:Whenever the appropriate Federal banking agency shall determine that the violation or threatenedviolation or the unsafe or unsound practice or practices, specified in the notice of charges served uponthe depository institution or any institution-affiliated party pursuant to paragraph (1) of subsection (b) ofthis section, or the continuation thereof, is likely to cause insolvency or significant dissipation of assetsor earnings of the depository institution, or is likely to weaken the condition of the depository institution orotherwise prejudice the interests of its depositors prior to the completion of the proceedings conductedpursuant to paragraph (1) of subsection (b) of this section, the agency may issue a temporary order ...

3 Duncan v. Walker, 533 U.S. 167, 174, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001).

1 The conduct and condition of ABC is related to the Bank only to the extent that the Bank's assets couldbe used to cross-guarantee any losses that ABC would suffer were it to fail. The Bank has denied theseallegations as they relate to the Bank and to ABC. Advanta Bank's Opposition to Federal Deposit InsuranceCorporation's Motion for Stay Pending Appeal [# 20] (“Bank's Opposition”) at 2 n. 1–2.

2 All references to the United States Code are to the electronic versions in Westlaw or Lexis.

3 The Bank asserts that it provided the FDIC with all of the information that it asked for, and that it had notreceived any new requests and had in fact received confirmation from the FDIC that no further informationwas needed regarding the financial status or condition of the Bank. Bank's Opposition at 7.

4 Holiday Tours, 559 F.2d at 843.

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