BANKING LAW
by Dean G. Pawlowic·
I.
II.
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
INTERSTATE BRANCHING TEXAS STYLE
A. Background.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
B. Ghiglieri v. Sun World National Ass'n & Ghiglieri v.
Ludwig
C. Epilogue: Death ofan Opt-out Statute . . . . . . . . . . . . . . . ..
III. LITIGATION ARISING FROM BANK FAILURES
A. FDIC v. Scott: Administrative Exhaustion of
Post-Receivership Claims for Indemnification
B. FDIC v. Lee: No Interest ofFDIC Subject to Tax Sale
UTuhout Consent ofFDIC
C. FDIC v. Abraham: Gross Negligence ofDirectors Not
Breach ofFiduciary Duty for Purposes ofStatute of
Limitations
IV. CONCLUSION
425
426
426
429
431
433
433
435
437
439
I. INTRODUCTION
All was relatively quiet on the banking front for the Fifth Circuit during
the survey period. The court did decide two significant cases permitting de
facto interstate branching for banks whose main offices are located within
thirty miles of a state line, but because of legislative developments, these
decisions have limited application.' Fallout from the bank failures of the
1980s continues, and several opinions addressed concerns relating to that
topic. 2 The few other banking-related decisions from the survey period are
noted below. 3
• Professor of Law, Texas Tech University School of Law; B.A., Creighton University, 1970;
M.A., Creighton University, 1972; J.D., summa cum laude, Creighton University, 1979.
1. See Ghiglieri v. Ludwig, 125 F.3d 941 (5th Cir. July 1997), cert. denied, 118 S. Ct. 1361
(1998); Ghiglieri v. Sun World Nat'l Ass'n, 117 F.3d 309 (5th Cir. July 1997), cerl. denied, 118 S. Ct.
1361 (1998); discussion infra Part II.
2. See discussion infra Part III.
3. See Texas Commerce Bank N.A. v. Florida, 138 F.3d 179 (5th Cir. Apr. 1998) (construing the
litigation exception to the Anti-Injunction Act in the context of litigation subsequent to an action
discharging the bank as trustee); Henderson v. OTS, 135 F.3d 356 (5th Cir. Mar. 1998) (holding that an
administrative law judge's deniai ofa summary judgment motion made by a former officer and director
of a savings and loan in the context of an administrative enforcement proceeding is not a final order
subject to judicial review); United States v. Oates, 122 F.3d 222 (5th Cir. Sept. 1997) (construing
sentencing guidelines on an appeal from a sentencing for bank fraud); United States v: Mulderig, 120 F.3d
534 (5th Cir. Aug. 1997), cert. denied, 118 S. Ct. 1510 (1998) (affirming a conviction for a misapplication
of bank funds and other charges in connection with two sham bank loans); United States v. Dupre, 117
F.3d 810 (5th Cir. July 1997), cert. denied 118 S. Ct. 857 (1998) (affirming convictions for bank fraud
425
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II. INTERSTATE BRANCHING TEXAS STYLE
Both Ghiglieri v. Sun World National Ass 'n4 and Ghiglieri v. Ludwig;
involved national banks seeking to engage in interstate branching, in effect,
by relocating their main offices across state lines and retaining existing
branches in their former home states. In Sun World, Sun World, N.A.
proposed moving its main office from El Paso, Texas to Santa Teresa, New
Mexico, while at the same time retaining its existing branches in Texas. 6 In
Ludwig, Commercial National Bank sought to move its main office from
Texarkana, Arkansas to Texarkana, Texas, while retaining its existing
branches in Arkansas.' Construing applicable federal statutes, the Office of
the Comptroller of the Currency (OCC) approved both applications, and the
Texas Banking Commissioner brought these cases to challenge the OCC's
approvals. s
A. Background
Prior to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (Riegle-Neal),9 interstate banking, in the sense of a bank holding
company's acquisition of banks outside of the bank holding company's home
state, was dependent upon authorization under state law pursuant to the
Douglas Amendment to the Bank Holding Company Act. 10 Under the
McFadden Act-12 U.S.C. § 36-a national bank could establish new branches
within the state in which it was situated if state law permitted state banks to
establish such branches. II Interstate branching, however, in the sense of a
single bank's operation of branches located in different states, was not
expressly contemplated under section 36 at all, except for limited grandfather
provisions. 12
Notwithstanding this apparent lack of authority for interstate branching,
on January 10, 1994, the OCC approved an application that resulted in the
creation of a national bank with branches in two states. 13 The basis of the
proposal was a Pennsylvania national bank's application to change the
and other criminal charges in connection with bank loans).
4. 117 F.3d 309.
5. 125 F.3d941.
6. See Sun World, 117 F.3d at 311.
7. See Ludwig, 125 F.3d at 943.
8. See id.; Sun World, 117 F.3d at 311.
9. Pub. L. No. 103·328, 108 Stat. 2338 (1994) (codified in scattered sections of 12 U.S.c.)
[hereinafter Riegle-Neal].
10. See 12 V.S.C. § I842(d) (1994), amended by 12 V.S.C.A. §1842(d) (West Supp. 1998).
II. See id. § 36(c).
12. See id. § 36, amended by 12 V.S.C.A. § 36 (West Supp. 1998).
13. See acc Corporate Decisions 94-D4 (Jan. 10, 1994), reprinted in [1993-1994 Transfer Binder]
Fed. Banking L. Rep. (CCH) ~ 89,644, at 84,002 (Feb. II, 1994).
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location of its main office in Pennsylvania to an office in New Jersey.14 After
the relocation, the bank would retain its existing branches in Pennsylvania and
establish a new branch at the location of its former main office in
Pennsylvania. IS After the relocation, therefore, the bank's main office would
be in New Jersey, but it would have branches in Pennsylvania. 16
The primary authority for the acc's approval was 12 U.S.C. § 30(b).'7
Section 30(b) permitted the acc to approve a national bank's application to
relocate its main office to any location within or outside the limits of the city
in which it is located, but not more than thirty miles beyond such limits. ls The
acc construed the plain meaning of section 30(b) to permit relocations across
state lines, so long as the distance was not more than thirty miles. '9 As to the
retention of existing branches in Pennsylvania after the relocation, the acc
observed that section 36 did not address the question of retention of
previously existing branches in the context of a main office relocation under
section 30. 20 And, based on the history of the statutory development of
sections 30 and 36, the acc concluded that a bank is allowed to retain
existing branches after a relocation within the same state or across state
lines. 21 Finally, with respect to the bank's ability to establish a new branch at
the site of its former main office, the acc reasoned that because the bank was
permitted to retain its existing branches in Pennsylvania, the bank was
situated in Pennsylvania as well as New Jersey.22 Because the bank was still
situated in Pennsylvania, pursuant to section 36 it could establish new
branches within Pennsylvania to the same extent that Pennsylvania permitted
state banks to branch within Pennsylvania. 23 Pennsylvania law did permit
branching within the state, so under section 36 the acc approved the
application for a new branch at the location of the bank's former main office
in Pennsylvania. 24 Thus, under this jerry-built procedure, interstate branching
was reborn.
Prompted to some extent by the acC's accidental discovery, Congress
acted that same year to fashion a more deliberate approach to interstate
banking and branching, in the form of Riegle-Neal. 2s With respect to
interstate banking, as of September 29, 1995, Riegle-Neal permitted the
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
See id. at 83,967.
See id.
See id.
See id. at 83,971-82.
See id. at 83,972.
See id.
See id. at 83,983.
See id.
See id. at 83,996.
See id.
See id.
See H.R. CONF. REp. No. 103-651, at 56-57 (1994), reprinted in 1994 U.S.C.CAN. 2068,
2077-78.
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Federal Reserve Board to approve a holding company's acquisition of an outof-state bank subject to only very limited restrictions permitted under state
law. 26 Interstate branching under Riegle-Neal did not depend entirely on a
thirty mile test, as had the acc's pronouncement, but the Riegle-Neal
compromise was subject to its own complications. Generally, interstate
branching under Riegle-Neal could be accomplished by two methods: merger
between banks with different home states,27 or establishment by a bank of a
de novo branch in a state other than its home state. 28 The interstate merger
authority, however, did not take effect until June I, 1997. 29 Furthermore, a
bank could not establish a de novo branch in another state unless that state
expressly permitted de novo branches. 3D And under the merger alternative, a
state was permitted to opt out of interstate branching if it expressly prohibited
such mergers by legislation enacted prior to June 1, 1997.31
With respect to interstate branching pursuant to the acc's construction
of the thirty mile relocation rule under section 30, the Conference Report on
Riegle-Neal states that Congress was aware of the acc procedures, concurred
with them, and "expect[ed] the acc to continue to follow those procedures
until the provisions of Title I become fully applicable on June 1, 1997."32
Riegle-Neal itself amends both section 30 and section 36 to provide that as of
June 1, 1997, the Riegle-Neal framework for interstate branching is the
exclusive means for a national bank to branch into a new state. 33
As permitted under Riegle-Neal, the Texas Legislature acted in 1995 to
prohibit both interstate bank mergers and the establishment of de novo
branches. 34 The Texas legislation, however, expires according to its terms on
September 2, 1999.35 Until that date, therefore, it appeared that neither of the
two general methods authorized under Riegle-Neal for accomplishing
interstate branching were available in Texas. 36 Because Riegle-Neal made
those methods the exclusive means for interstate branching only as of June 1,
1997,37 there was an implied window of opportunity for interstate branching,
even in Texas, by means of the thirty mile relocation rule under section 30
until that date.
26.
See Riegle-Neal § 101, 12 U.S.C. § I842(d) (1994).
See Riegle-Neal § 102, 12 U.S.C. § 1831u.
See Riegle-Neal § 103, 12 U.S.C. § 36(g).
29. See Riegle-Neal § 102, 12 U.S.C. § 1831u.
30. See Riegle-Neal § 103, 12 U.S.C. § 36(g).
31. See Riegle-Neal § 102, 12 U.S.C. § 183Iu(a)(2).
32. H.R. CONF. REp. No. 103-651, at 57 (1994), reprinted in 1994 U.S.C.CAN. 2068,2078.
33. See R.iegle-Neal § 102(b)(I)-(2), 12 U.S.C. §§ 30(c), 36(e).
34. See TEX. FIN. CODE ANN. § 32.0095 (Vernon 1998). For a discussion of the Texas opt-out
statute, see irifra Part I1.C.
35. See id.
36. See supra notes 27-28 and accompanying text. But cf infra Part I1.C. (discussing the early
demise of the Texas opt-out statute).
37. See supra notes 29-33 and accompanying text.
27.
28.
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B. Ghiglieri v. Sun World National Ass'n & Ghiglieri v. Ludwig
In 1994, Commercial National Bank (CNB) applied to the acc to (i)
relocate its main office from Texarkana, Arkansas to Texarkana, Texas, (ii)
retain its existing Arkansas branches after the relocation, and (iii) establish a
new branch at the site of its former main office in Arkansas. 38 Sun World,
N.A. (SWNA) similarly applied in 1996 to the acc to (i) relocate its main
office from El Paso, Texas to Santa Teresa, New Mexico, (ii) retain its
existing branches in Texas after the relocation, and (iii) establish a new branch
at the site of its former main office in Texas. 39 In each case, the main office
relocation was a distance of less than thirty miles, and the acc approved the
applications of both banks based on the rationale outlined above. 40 In Sun
World and Ludwig, the Texas Banking Commissioner challenged the acc's
construction of applicable law. 41 The district courts in both cases held that
although the banks could relocate their main offices across state lines, they
could not retain branches or establish new branches in their former home
states. 42
Sun World was the first of the two cases to reach the Fifth Circuit,43
Under Chevron US.A., Inc. v. Natural Resources Defense Council, Inc. ,44 the
court was bound to defer to the acc's interpretation of sections 30 and 36 if
it was a reasonable one and if Congress had not directly addressed the precise
question at issue. 45 Finding that neither section specifically spoke to the
retention of branches after a relocation, the circuit court concluded that the
acC's interpretation permitting the retention of branches was permissible. 46
Bolstering this construction of sections 30 and 36 was the fact that RiegleNeal specifically limited the retention of branches under these circumstances,
but made those limitations effective only as of June 1, 1997.47
ance the Fifth Circuit held that SWNA could retain its Texas branches
after the relocation of its main office to New Mexico, the court found it easy
to uphold as reasonable the acC's next conclusion that after the relocation,
SWNA was situated in both Texas and New Mexico. 48 Therefore, for
38. Ghiglieri v. Ludwig, 125 F.3d 941, 942-43 (5th Cir. Oct. 1997), cert. denied, 118 S. Ct. 1361
(1998). Commercial National Bank of Texarkana was a codefendant. See id. at 941.
39. See Ghiglieri v. Sun World Nat'l Ass'n, 117 F.3d 309, 311 (5th Cir. July 1997), cert. denied,
118 S. Ct. 1361 (1998).
40. See Ludwig, 125 F.3d at 943-44; Sun World, 117 F.3d at 311-12; discussion supra Part 1l.A.
41. See Ludwig, 125 F.3d at 943; Sun World, 117 F.3d at 311.
42. See LudWig, 125 F.3d at 942; Sun World, 117 F.3d at 311.
43. Compare Sun World, 117 F.3d at 309 (decided July 1997), with Ludwig, 125 F.3d at 941
(decided Oct. 1997).
44. 476 U.S. 837 (1984).
45. See Sun World, 117 F.3d at 313 (citing Chevron U.S.A., 476 U.S. at 842-43).
46. See id. at 314-15.
47. See id.
48. See id. at 316.
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purposes of establishing new branches under section 36, SWNA could
establish a branch at the site of its former main office in EI Paso if Texas law
permitted a Texas bank to branch in EI Paso·. 49 Because Texas law permits
state banks to branch throughout the state, section 36 authorized such
branching for SWNA. 50 Accordingly, the Fifth Circuit vacated the district
court's decision and remanded the case for entry ofjudgment in favor of the
aCc. 51
Ludwig·presented the same sections 30 and 36 issues to the Fifth Circuit
as did Sun World. 52 Therefore, with respect to CNB's retention of Arkansas
branches after the relocation of its main office to Texas, the court simply cited
Sun World. 53 Also, as determined by Sun World, after the main office
relocation to Texas and the retention of branches in Arkansas, CNB was
situated in both Texas and Arkansas for purposes of establishing a new branch
under section 36 at the site of its former main office in Texarkana, Arkansas. 54
Under these facts, section 36 incorporated the law of Arkansas, rather
than the law of Texas. 55 The only remaining issue, therefore, was whether
under these circumstances Arkansas law permitted a state bank to branch in
Texarkana, Arkansas. 56 ·Arkansas's general branching statute allows a state
bank to establish a branch "anywhere within the county in which the
establishing bank's principal banking office is located."5? Because CNB's
main office was now in Texas, this provision raised some question as to its
application to CNB. 58 The OCC argued that under these facts, the phrase
"principal office" should refer to CNB's principal place of business within
Arkansas, which would be Texarkana, where CNB's preexisting branches and
former main office were located. 59 The Fifth Circuit found it unnecessary to
decide the issue, however, because another Arkansas statute authorizes a state
bank relocating its principal banking office to "continue to use its former
principal banking office location as a full service branch ... so long as the use
as a banking facility is uninterrupted."60 On the basis of this authority, the
court held that Arkansas law plainly allowed a state bank to establish a branch
at the former location of its main office. 61 Accordingly, section 36 granted
49.
50.
51.
52.
See id.
See id. (citing TEX. REv. C1V. STAT. ANN. arts. 342-3.20 I(a), 342-3.203 (Vernon Supp. 1996».
Seeid.at316-17.
.
See Ghiglieri v. Ludwig, 125 F.3d 941, 943 (5th Cir. Oct. 1997), cert. denied, 118 S. Ct. 1361
(1998).
53.
54.
55.
56.
57.
58.
59.
See id. (citing Sun World, 117 F.3d at 313-15).
See id.
See id. at 943-44.
See id. at 944.
[d. (quoting ARK. CODE ANN. § 23-32-1202(b)(I».
See id.
See id.
60.
[d. (citing ARK. CODE ANN. § 23-32-1202(b)(2».
61.
See id.
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CNB similar authorization, and the Fifth Circuit remanded the case to the
district court for entry ofjudgment in favor of the acc and CNB. 62
Sun World and Ludwig are obviously important cases in the history of
interstate branching. Since June 1, 1997, however, Riegle-Neal has provided
the exclusive means for a bank to branch into a new state. 63 Thus, except for
banks that prior to such date relocated main offices fortuitously situated
within thirty miles of a state line, Sun World and Ludwig may stand mainly as
illustrations of an industry's creative manipulation of legal limitations
perceived to have lost their legitimacy. With respect to the jurisprudence of
the Fifth Circuit, Sun World and Ludwig evidence the court's acceptance of
judicial deference to the acc' s interpretations of the meaning of statutes it
is charged with administering. 64
C. Epilogue: Death ofan Opt-out Statute
The Sun World saga, however, does not end here. After SWNA relocated
its main office from Texas to New Mexico, and retained existing offices in
Texas as branches, its home state for purposes of Riegle-Neal was New
Mexico.65 Subsequently, SWNA merged with an affiliate bank, NationsBank,
N.A., whose home state was North Carolina ("NB North Carolina").66 This
merger (the "SWNA Merger"), which occurred after the June 1, 1997 effective
date of Riegle-Neal, was permitted under Riegle-Neal since neither New
Mexico nor North Carolina had opted out of Riegle-Neal's interstate merger
authority.67 Following the SWNA Merger, the banking offices ofSWNA in
New Mexico and Texas were retained and operated as branches ofNB North
Carolina. 68 Thus, NB North Carolina had gained a banking presence within
Texas.
At the same time as the application for the SWNA Merger, NB North
Carolina also filed an application to merge NB North Carolina with its crown
affiliate in Texas, NationsBank of Texas, N.A. ("NB Texas"), whose main
office was located in Dallas, Texas, and which operated branches only in
Texas (the "Texas Merger").69 The Texas Merger was conditional on
completion of the SWNA Merger. 7o The Texas Banking Commissioner
62.
63.
64.
See id.
See supra notes 31-32 and accompanying text.
See Ludwig, 125 F.3d at 943; Ghiglieri v. Sun World Nat'l Ass'n, 117 F.3d 309, 313-15 (5th
Cir. July 1997), cerl. denied, lIS S. Ct. 1361 (I 99S).
65. See OCC Corporate Decisions 9S-07, at 4 (Jan. 15, I99S), available on Corporate Decision
#9S-07 (visited Mar. 3, 1999) <http://www.occ.treas.gov/interp/feb9S/cd9S-07.pdf.>.
66.
67.
6S.
69.
See id.
See id.
See id. at 2.
See id., n. 3; OCC Corporate Decisions 9S-19, at 1-2 (Apr. 2, 1995), available on Corporate
Decision #9S-19 (visited Mar. 3,1999) <http://www.occ.treas.gov/interp/May9S/cd9S-19.pdf.>.
70. See OCC Corporate Decisions 9S-07 at 2 n.3 (Jan. 15, I99S), available on Corporate Decision
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sought to enjoin the Texas Merger on the basis that Riegle-Neal did not permit
a merger between banks with different home states if one of the home states
had opted out, as had Texas. 7I
.
The acc approved the application for the Texas Merger and found that
it was authorized under federal banking law for three reasons. 72 First,
although NB North Carolina's home state was North Carolina, the acc found
that, after the SWNA Merger, NB North Carolina was also "located" in Texas
because it currently operated branches in Texas-the SWNA banking offices
in Texas that were retained and operated as branches ofNB North Carolina. 7J
Therefore, the Texas Merger was between two banks located within the same
state, and the relevant merger authority was not Riegle-Neal, which governs
a bank's initial entry into a state, but 12 U.S.c. § 215a, which permits mergers
between banks that are located in the same state. 74 Second, the acc
concluded that even if Riegle-Neal were applicable to the Texas Merger, the
Texas statute7S opting out of interstate merger authority was not effective
because under Riegle-Neal a state's opt-out law must apply equally to all
banks. 76 Under the Texas statute, however, savings banks were excluded from
the reach of the statute. 77 Third, the acc ruled that if the Texas opt-out
statute is not effective under Riegle-Neal, then it conflicts with federal law
which authorizes the Texas Merger and therefore preempts the Texas statute. 78
The district court deferred to the acc's conclusion that the Texas
Merger was a merger between banks located in the same state and, hence,
governed by section 215a, not Riegle-Neal. 79 The court denied the Banking
Commissioner's application for an injunction on this ground, and for that
reason did not reach the issue of whether the Texas opt-out statute was flawed
under Riegle-NeaI. 80·
ane week following the district court's decision, the Texas Banking
Commissioner capitulated not with a whimper, but a bang. 81 In a May 13,
1998 press release, the Commissioner embraced the acc's alternative
argument, not addressed by the court, that the Texas opt-out statute was fatally
#98-07 (visited Mar. 3,1999) <http://www.occ.treas.gov/interp.feb98/cd98-07.pdf>.
71. See Ghiglieri v. NationsBank ofTexas, N.A., No. C1V.A.3:97-CV-2897-P, 1998 WL 241234,
at·2 (N.D. Texas May 6, 1998).
72. See DCC Corporate Decisions 98-19, at 4 (Apr. 2, 1998), available on Corporate Decision
#98-19 (visited Mar. 3,1999) <http://www.occ.treas.gov/interp.may98/cd98-19.pdf>.
73. See id. at 5-17.
.
74. See id. (citing 12 U.S.C. § 215a (1994».
75. See supra notes 34-36 and accompanying text.
76. See OCC Corporate Decisions 98-19, at 5-17 (Apr. 2,1998), available on Corporate Decision
#98-19 (visited Mar. 3,1999) <http://www.occ.treas.gov/interp.may98/cd98-19.pdf>.
77. See id.
78. See id. at 20-22.
79. See Ghiglieri, 1998 WL 241234 at ·4.
80. See id.
8!. Cf Texas Dept. of Banking Press Release May 13, 1998 (visited Feb. 25,1999) <http://www.
banking.state.tx.us/execlpress47.html>.
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flawed under Riegle-Neal, and on that basis invited state-chartered institutions
to submit applications for interstate merger and branching transactions. 82
Within a few short months, the Texas Department of Banking announced that
ifhad approved three interstate merger applications. 83 Thus, the Texas opt-out
statute, set to expire by its own terms on September 2, 1999,84 meet its
untimely demise.
III. LITIGATION ARISING FROM BANK FAILURES
A. FDIC v. Scott: Administrative Exhaustion ofPost-Receivership
Claims for Indemnification
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 (FIRREA),8S any claimant with a claim against a failed financial
institution is required to first present that claim to the receiver for the
institution for an administrative determination. 86 In brief, the statutory
procedure (i) requires the receiver to give notice of the bar date for presenting
claims (which may not be less than 90 days after the notice), (ii) requires the
receiver to allow or disallow a claim within 180 days after receipt of the
claim, (iii) requires the receiver to disallow any claim filed after the bar date,
except for claims with respect to which "the claimant did not receive notice
of the appointment of the receiver in time to file such claim before such date,"
(iv) in the event of an adverse determination by the receiver or a failure of the
receiver to act within the permitted period, allows the claimant either to seek
review of the claim by the FDIC, or to commence or continue a court action
on the claim, and (v) deprives courts ofjurisdiction over any claim except in
accordance with the statutory procedure. 87 However, the statutory procedure
neither defines the term "claim," nor expressly addresses claims that arise after
the bar date.
FDIC v. Scott presents the question of whether a post-receivership claim
for indemnification that did not arise until after the statutory bar date is
subject to FIRREA's administrative exhaustion requirement. 88 In Scott, the
receiver for a savings and loan, which was organized to enter into a purchase
and assumption agreement with a failed Mississippi savings and loan, brought
82. See id.
83. See Texas Dept. of Banking Press Release October I, 1998 (visited Feb. 25, 1999)
<http://www.banking.state.tx.us/execlpress/10-1-98a.html>.
84. See supra note 35 and accompanying text.
85. Pub. L. No. 101-73, 103 Stat. 183 (1989) (codified as amended in scattered sections of 5
U.S.C., 12 U.S.C., 18 U.S.C., and 31 U.S.C.) [hereinafter FIRREA].
86. See FIRREA § 212,12 U.S.C. § I 82 l(d)(3)-(1 3), amended by 12 U.S.C.A. § 1821(d)(3)-(5),
(8), (II), (13) (West Supp. 1998).
87. ld.
88. 125 F.3d 254, 259 (5th Cir. Oct. 1997).
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suit against a former officer of the Mississippi savings and loan for breach of
duties to the savings and loan. 89 The receiver filed the claim nearly four years
after the failure of the Mississippi savings and 10an.90 The officer
counterclaimed for indemnification pursuant to a bylaw provision of the
Mississippi savings and loan.91 The FDIC moved to dismiss the counterclaim
because FIRREA required the officer to exhaust his administrative remedies
with the FDIC before proceeding in court. 92
The Fifth Circuit ruled, first, that FIRREA's exhaustion requirement was
explicitly mandated by Congress, not judicially implied. 93 Therefore, courts
have no discretion to excuse FIRREA's administrative exhaustion rule, as
they would have if it were ofjudicial origin. 94
Second, the court held that although the statutory bar date had lapsed
before the indemnification claim had arisen, it would "defer to the FDIC's
reasonable interpretation of FIRREA as requiring administrative exhaustion
even for post-bar date claims."9s Although FIRREA does not specifically
address claims that arise after the bar date, the Fifth Circuit referenced an
"internal" claims procedure the FDIC developed that allows claimants to file
claims arising after the bar date. 96 It was the court's understanding that under
the internal claims procedure, the officer could still seek administrative
review ofthe indemnification demand, see it get rejected, and then promptly
refile the claim in court. 97
Third, after noting that other courts were divided over the issue, the Fifth
Circuit concluded that an action for indemnification or attorney's fees is not
an affirmative defense or other type of proceeding that should be excluded
from the definition of a "claim" for exhaustion purposes under FIRREA. 98
Rather, the court considered an action for indemnification to be in the nature
of a counterclaim, which the court ruled must be presented for an
administrative determination even if it is occasioned by a claim filed by the
FDIC after the statutory bar date. 99
The Fifth Circuit, therefore, remanded the case to the district court with
instructions to dismiss the claim for indemnification for want of
jurisdiction. 100 The Fifth Circuit expected to find the same parties back before
it seeking a ruling on the merits of the indemnification claim soon after the
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
See id. at 256.
See id.
See id.
See id.
See id. at 257-59.
See id.
ld. at 259.
ld.
See id. at 261.
See id. at 259-60.
See id.
See id. at 261.
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officer submitted the claim for administrative determination and the receiver
denied it. lOt Acknowledging that in this instance the exhaustion rule makes
waste, the court commented that "it is not within our province to rewrite'
statutes simply to make them more efficient.",o2
B. FDIC v. Lee: No Interest ofFDIC Subject to Tax Sale Without
Consent ofFDIC
Another provision of FIRREA frequently revisited by the Fifth Circuit
is 12 U.S.C. § 1825(b)(2), which provides that no property of the FDIC "shall
be subject to levy, attachment, garnishment, foreclosure, or sale without
consent" of the FDIC. 103 What is the impact of this statute when it collides
with local law in a tax sale of property in which the FDIC holds a mortgage
lien? The Fifth Circuit addressed this issue in FDIC v. Lee. '04
In Lee, the FDIC, in its capacity as receiver for a failed savings and loan,
succeeded to a mortgage on certain real estate located in Jefferson Parish,
Louisiana. 105 The owner of the land did not pay the taxes when due, and the
property was sold at a tax sale to a third party.l06 The FDIC had not filed a
request for notice of a tax delinquency as permitted under Louisiana law and
did not receive notice of the tax sale. lo7 Soon after the tax sale, however, the
tax purchaser informed the FDIC of the sale and inquired whether the FDIC
intended to redeem the property. lOS The FDIC took no action for three years,
but then filed a writ of mandamus in state court to compel the sheriff to issue
a redemption deed to the FDIC for the property.l09 The state court denied the
writ because the FDIC had not reimbursed the tax purchaser for maintenance
and repair prior to redemption as required under Louisiana law. llo The FDIC
then filed an action in federal court, seeking to have the court declare the tax
sale null and void as a violation of the FDIC's constitutional right to notice
before the sale. III The district court granted the FDIC summary judgment,
and this appeal followed. 1I2
Before addressing the constitutional grounds for the district court's
judgment, the Fifth Circuit considered an alternative argument of the FDIC:
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
Ill.
112.
See id.
Id.
F1RREA § 219,12 U.S.C. § I 825(b)(2) (1994).
130 F.3d 1139 (5th Cir. Dec. 1997).
See id. at 1140.
See id.
See id.
See id.
See id.
See id.
See id.
See id.
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that the tax sale was void because it violated 12 U.S.C. § 1825(b)(2).113 The
Fifth Circuit devoted most of its opinion to an explanation of why the court
believed it was appropriate to address this statutory argument, even though the
FDIC had not asserted the statute's applicability before the district court
during the summary judgment proceedings. 114 Once the appellate court
reached the merits of the section 1825(b)(2) issue, it quickly concluded that
a tax sale could not extinguish the lien of the FDIC without the FDIC's
consent. liS Therefore, the Fifth Circuit found it unnecessary to reach the
constitutional issues decided by the district court and, without further
discussion, declared that the tax sale was null and void. 116
As authority for its conclusion that section 1825(b)(2) shields any
property interest of the FDIC, including a lien interest, from foreclosure or
sale without the FDIC's consent, the Lee court cited Matagorda County v.
Russel Law. I I? Matagorda County, however, did not squarely address whether
section 1825(b)(2) necessarily renders a tax sale conducted without the
FDIC's consent null and void, or whether it merely prevents the
extinguishment of the FDIC's lien. llS When this issue finally did surface in
First State Bank-Keene v. Metroplex Petroleum Inc., the Fifth Circuit found
it necessary to reinterpret its holding in Lee. 119
In First State Bank, the court identified the common thread that runs
through the line of cases interpreting section 1825(b)(2) to be that the FDIC
must consent to any deprivation of its property.120 Under the facts of First
State Bank, the Fifth Circuit concluded that a tax sale of property in which the
FDIC possessed a lien was not null and void and was effective to convey legal
title, even though the FDIC had not consented to the sale. 121 This was so
because the FDIC had not been made a party to the tax suit, and under
applicable state law the tax sale, for that reason, did not extinguish the FDIC's
lien. l22 Rather, the tax purchaser took the property subject to the FDIC's lien,
and the FDIC suffered no deprivation of property. 123 In contrast, there was a
deprivation of property in Lee, according to the First State Bank court,
because under applicable state law, the FDIC was not permitted to exercise its
113. See id. at 1141-42.
114. See id.
115. See id. at 1143.
116. See id. at 1142-43; see also Trembling Prairie Land Co. v. Verspoor, 145 F.3d 686, 691 (5th
Cir. July 1998) (concluding that a tax sale conducted without FDIC consent is null and void), petition/or
cert.fi/ed, 67 U.S.L.W. 3394 (U.S. Nov. 30,1998) (No. 98-920).
117. See Lee, 130 F.3d at 1143 (citing 19 F.3d 215, 219-23 (5th Cir. 1994».
118. Cf Matagorda County, 19 F.3d at 223 n.7 (noting that the FDIC has stated that a taxing
authority can foreclose its lien as long as the FDIC lien is protected).
119. 155 F.3d 732, 737·39 (5th Cir. Sept. 1998) (interpreting Lee and Verspoor).
120. See id. at 738.
121. See id. at 739.
122. See id.
123. See id.
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power of redemption after the tax sale unless it reimbursed the tax purchaser
for repairs and maintenance of the property. 124 Therefore, the tax sale in Lee
did not merely transfer title, but subjected the FDIC to payment of an
additional nonconsensual fee before the FDIC could exercise its rights under
the mortgage. l25 The First State Bank court then ventured that the deprivation
in Lee "appears" to have been the requirement that the FDIC reimburse the tax
purchaser those additional amounts. 126
Finally, when the practical effect of section 182S(b)(2) in this context is
to prevent or delay the foreclosure of a local tax lien, the other issue that
arises is whether the FDIC has taken property of the local taxing authority
without just compensation as required by the Fifth Amendment to the United
States Constitution. 127 This question was not raised in Lee, but was considered
in Matagorda County.128 In Matagorda County, the FDIC argued that there
was no compensable taking because section 182S(b)(2) does not extinguish
a taxing authority's lien, or prevent foreclosure, so long as the FDIC lien is
protected. 129 Under the facts of Matagorda County, however, foreclosure of
the tax lien subject to the FDIC lien was not practical because the value of the
property was substantially less than the amount of the FDIC lien. 130 Until the
FDIC consented to foreclosure or agreed to some other arrangement,
enforcement of the lien would, at the least, be delayed. 131 The delay in
Matagorda County had extended slightly more than two years, and the Fifth
Circuit indicated that under the facts of that case the delay was approaching,
but did not yet constitute, a taking. l32 The court warned, however, that at
some point such delay could result in an unconstitutional taking. 133
C. FDIC v. Abraham: Gross Negligence ofDirectors Not Breach
ofFiduciary Duty for Purposes ofStatute ofLimitations
In FDIC v. Abraham, the Fifth Circuit reaffirmed its view that under
Louisiana law, a claim based on gross negligence against an officer or director
of a failed savings and loan sounds in unintentional tort and is therefore
subject to a one-year prescriptive period for delictual actions. 134 A breach of
fiduciary duty under Louisiana law is subject to a ten-year prescriptive period
124.
125.
126.
127.
amend. V.
128.
129.
130.
131.
132.
133.
134.
See id.
See id.
[d.
See Matagorda County v. Russel Law, 19 F.3d 215, 223-25 (5th Cir. 1994); U.S. CONST.
See id.
See id. a1223.
See id. at 225 n.11.
See id.
See id.
See id.
137 F.3d 264, 270 (5th Cir. Mar. 1998).
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for personal actions, but the Fifth Circuit had previously distinguished a
breach of the duty of care involving gross negligence from a breach of
fiduciary duty.13s In its prior decision, FDIC v. Barton, the court concluded
that a claim for the breach of fiduciary duty required allegations of the failure
of good faith and loyalty.136 According to Barton, the gross negligence of an
officer or director is a violation of the duty of care, but it does not rise to the
level of a breach of fiduciary duty for purposes of Louisiana's ten-year
prescriptive period unless "it is coupled with fraud, a breach of trust or other
ill acts." m
In Abraham, the FDIC argued that the court should disregard Barton
because subsequent to that decision, a Louisiana intermediate court of appeal
opinion apptoved a jury charge that described both the duty to act in good
faith and the duty to act with due care as fiduciary duties.13K Although subject
matter jurisdiction for Abraham was not grounded on diversity of citizenship,
the Erie doctrine governed this issue because state law provided the rules of
decision for the applicable prescriptive period. 139 However, resolution of this
issue involved not only Erie's application to intermediate state appellate
decisions, but also the potential collision of Erie rules with the doctrine of
stare decisis, considering that the Fifth Circuit had already addressed the
Louisiana prescriptive period issue in Barton. 140
In this context, the Abraham court identified the rule to be that a
subsequent panel of the court is bound by a prior panel's decision interpreting
state law unless there is intervening authority clearly to the contrary in the
form of (i) legislation, (ii) a holding of the highest court of the state, or (iii)
unanimous or near-unanimous holdings from several of the intermediate
appellate courts of the state.J 41 Finding none of the above exceptions in the
instant case, the Abraham court confirmed that it was bound by Barton and
affirmed the district court's grant of summary judgment dismissing the claims
of the FDIC because they were barred by Louisiana's one-year period of
prescription for delictual actions. '42
135. See id. at 266-67 (citing FDIC v. Barton, 96 F.3d 128, 133-34 (5th Cir. 1996».
136. See Barton, 96 F.3d at 133-34.
137. Id.
138. See Abraham, 137 F.3d at 267.
139. See id. The Erie doctrine holds that federal courts must apply only state substantive law in
federal diversity actions. See Erie Railroad v. Tompkins, 304 U.S. 64, 76-78 (1938).
140. See Abraham, 137 F.3d at 268.
141. See id. at 268-70.
142. See id. at 270.
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IV. CONCLUSION
The dust continues to settle from the bank failures of the 1980s, as
evidenced by the three cases discussed above relating to that topic. 143
However, the most interesting decisions of the survey period involve bank
expansion rather than bank failure. In Ghiglieri v. Sun World National
Ass 'n l44 and Ghiglieri v. Ludwig,145 the acc interpreted the banking statutes
to discover interstate branching authority, in effect, for a narrow class of
banks whose main offices happened to be located within thirty miles of a state
line. 146 As startling as this discovery might seem, Congress implicitly ratified
it for a limited period of time in Riegle-Neal. 147 Given that congressional
action, it was easy for the court to uphold the acc's determinations in these
cases and to demonstrate that the Fifth Circuit has learned well the Supreme
Court's recent admonitions concerning judicial deference to the
interpretations of the acc with regard to the meaning of statutes it is charged
with administering. 148 Lastly, Sun World and Ludwig are also good examples
of an industry's creative manipulation oflegallimitations perceived to have
lost their import in order to permit by the letter of the law activities that
appear to be forbidden by its spirit.
143.
144.
145.
146.
147.
148.
See discussion supra Part III.
117 F.3d 309 (5th Cir. July 1997), cert. denied, 118 S. Ct. 1361 (1998).
125 F.3d 941 (5th Cir. July 1997), cert. denied, 118 S. Ct. 1361 (1998).
See discussion supra Part II.B.
See supra notes 32-33 and accompanying text.
See supra notes 44-45 and accompanying text.
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