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   [5203] In the Matter of The Meriden Trust and Safe Deposit Company, Meriden, Connecticut, Docket No. FDIC-92-241kk (9-21-93).

   FDIC Board adopts ALJ's recommendation and grants enforcement counsel's motion for summary disposition, finding that respondent is an insured depository institution subject to the cross-guarantee provisions of 12 U.S.C. § 1815(e).
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   [.1] Bank Insolvency—Cross Guarantee Liability—Jurisdiction
   Issues of bank's liability and FDIC's jurisdiction over it as an insured depository institution are viewed as part of a continuum of administrative agency with particular expertise.

   [.2] Bank Insolvency—Cross Guarantee Liability—Status as Insured Institution
   Once granted status as an insured institution, the only way for bank to become uninsured is for it to seek termination and obtain FDIC permission to convert to noninsured status. It cannot simply declare itself uninsured after failure of a commonly controlled institution.

In the Matter of

THE MERIDEN TRUST AND SAFE DEPOSIT COMPANY
MERIDEN, CONNECTICUT
(Insured Depository Institution)
Related to
CENTRAL BANK
MERIDEN, CONNECTICUT
(Commonly Controlled Insured Depository Institution)
Decision and Order
FDIC-92-241kk

   This matter is before the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") following a Recommended Decision by Administrative Law Judge Walter J. Alprin ("ALJ").1 The ALJ recommends denying the Motion to Dismiss filed by Respondent, The Meriden Trust and Safe Deposit Company, Meriden, Connecticut ("Respondent" or "Meriden"), and granting the Motion for Summary Judgment filed by the FDIC.2
   This proceeding arises out of an assessment by the FDIC against Respondent pursuant to the cross-guarantee provisions of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1815(e). Respondent was assessed approximately $152,000,000 as cross-guarantor of FDIC losses caused by the failure of Central Bank, Meriden, Connecticut, a commonly controlled insured depository institution.
   On January 20, 1993, Respondent filed a Motion to Dismiss this proceeding, alleging a lack of jurisdiction because the Respondent is not an insured depository institution subject to the cross-guarantee statute. Respondent also alleges that the Board is without authority to resolve this question in this proceeding because section 1815(e)(3) only empowers the administrative review body to consider the liability of "individual commonly controlled depository institution," which "on its face precludes consideration of the question of who qualifies as a depository institution." Respondent's Motion to Dismiss at 3, fn. 1. Therefore, Respondent alleges the issue must be heard de novo by the District Court.

DISCUSSION

   The Board concurs in and adopts the ALJ's findings of fact, conclusions of law and Recommended Decision. The Recommended Decision is supplemented by the discussion below.
   [.1] The Board does not view the preliminary jurisdictional issue of whether Meriden is an "insured depository institution" as separate from the issue of whether Meriden has incurred liability as an "individual commonly controlled depository institution." Rather, these issues are viewed as part of a continuum of administrative inquiry. Resolution of Meriden's liability requires resolution of the issue of FDIC's jurisdiction over Meriden as an insured depository institution. This is consistent with general principles of the requirement that administrative remedies be exhausted. Certainly, an agency has the right to determine its jurisdiction in the first in-


1 The document issued May 10, 1993, by the ALJ is specifically entitled "Order Denying Respondent's Motion to Dismiss and Recommending Ruling on Cross-Motions for Summary Disposition in Favor of the Corporation." For brevity and to conform to Corporation practice, it is referred to herein as the "Recommended Decision." Citations to the Recommended Decision shall be "R.D. at ____."

2 In recommending the grant of the FDIC's Motion for Summary Judgment, the ALJ also recommended the denial of Respondent's Cross-Motion for Summary Judgment. Technically, these were motions for summary disposition under the FDIC's Rules and Regulations and will be referred to as such hereafter.
{{11-30-93 p.A-2308}}stance, and a party summoned to appear before an agency must first exhaust administrative remedies before the courts will allow a challenge based upon the party's assertion that it is not subject to the agency's regulatory scheme. Endicott Johnson Corp. v. Perkins, 317 U.S. 501 (1943). Permitting the agency to address the issues raised by Respondent will allow it to apply its expertise to a technical issue, develop a factual record, correct any error made in concluding initially that Respondent was covered by the cross-guarantee provisions, and perhaps moot the case by granting relief to Respondent. Matter of Gould Publishing Co., 934 F.2d 457, 459-60 (2d Cir. 1979). The Board agrees with the ALJ that "the disputed issue...is best answered in the first instance by the administrative agency with particular technical expertise." R.D. at 4 and cases cited therein. Thus, the issue before the Board at this time is a narrow one—whether Respondent is an insured depository institution.
   [.2] Meriden's reading of the statute to permit it to merely declare itself "insured" or "uninsured" is untenable. An institution which has deposit insurance is subject to a large number of requirements as well as government guarantees that are inapplicable to an institution which does not. The federal and state banking regulatory agencies could not possibly supervise in any rational manner a set of institutions which would have the capacity to change their status from "insured" to "uninsured" at will. Furthermore, termination of insured status has potential effects on depositors and the insurance fund with which both the institution and the regulators must deal.
   Finally, this case furnishes a vivid example of the potential for abuse inherent in Respondent's view of the operation of the statute. Meriden did not rid itself of the last deposit or attempt to shed its insured status until after the failure of its commonly-controlled institution, Central Bank, when it was undeniably subject to the statutory cross-guarantee liability. Permitting Respondent to avoid its liability by reading out of the statute the FDIC approval for withdrawal of deposit insurance would eviscerate the congressional purpose which underlies the cross-guarantee provisions.
   Respondent's attempt to define the issue as not whether it has insurance, but whether it engages in the business of taking deposits is off-target. Once granted status as an insured depository institution in 1971, as relevant here, there is only one way in which Respondent could become a noninsured depository institution, i.e., it could voluntarily seek to terminate its insured status (12 U.S.C. § 1818(a) (1)) and obtain the FDIC's permission to convert to noninsured status (12 U.S.C. § 1828(i)(3)). Without the confluence of both statutory provisions Respondent remains an insured depository institution.
   As correctly found by the ALJ, the FDI Act was not intended to permit Respondent to maintain its insured status with the coverage of limited deposits by affiliated institutions and with the potential of accepting deposits from both affiliates and the general public as and if it wishes, and at the same time permit Respondent to escape cross-guarantee liability. R.D. at 11.

CONCLUSION

   The Board finds that Respondent is an insured depository institution and as such is subject to the cross-guarantee provisions of 12 U.S.C. § 1815(e). Accordingly, an order will be issued denying Respondent's Motion to Dismiss and cross motion for summary disposition and granting FDIC Enforcement Counsel's motion for summary disposition.3

ORDER

   The Board of the FDIC, having considered the record in its entirely, and having found that Respondent is an insured depository institution under the FDI Act, HEREBY ORDERS that the Motion to Dismiss and Cross Motion for Summary Judgment filed by Respondent, The Meriden Trust and Safe Deposit Company, are DENIED. The Motion for Summary Judgment of the FDIC is GRANTED.
   The provisions of this Order shall remain effective and enforcement except to the extent that, and until such time as, any provisions of this Order shall have been modified, terminated, suspended, or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 21st day of September, 1993.
   /s/ Hoyle L. Robinson
   Executive Secretary


3 While Respondent's Answer joined issue with all matters raised in the Notice of Assessment, its Motion for Summary Judgment withdrew any challenge to the correctness of the amount of the assessment, the distribution of such assessement among commonly controlled institutions, or a particular schedule of payments.
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__________________________________________

RECOMMENDED DECISION

In the Matter of
The Meriden Trust and Safe Deposit Co.
Meriden, Connecticut
(Insured Depository Institution)
Related to
Central Bank
Meriden, Connecticut
(Commonly Controlled Insured Depository Institution)
Walter J. Alprin, Administrative Law Judge:

   This proceeding involves an assessment pursuant to 12 U.S.C. § 1815(e) by the Federal Deposit Insurance Corporation (FDIC) against Meriden Trust and Safe Deposit Company (Respondent), Related to Central Bank, a Commonly Controlled Insured Depository Institution, as cross-guarantor of FDIC liabilities for the failed commonly controlled depository institution. There are pending Respondent's motion to dismiss, and crossmotions for summary disposition.

I. Motion to Dismiss

   On January 20, 1993, Respondent filed a Motion to Dismiss this proceeding, alleging a lack of jurisdiction in that Respondent is not an insured depository institution subject to the cited statute. The FDIC opposes the motion.
   It is well settled that a "litigant complaining of an administrative action is required to exhaust `all of his administrative remedies before he will be permitted to seek judicial relief,'"1 particularly where the applicant is a single entity.2 12 C.F.R. Part 308 mandates an administrative hearing and Recommended Decision by the Office of Financial Institution Adjudication prior to Final Decision by the FDIC, followed by appellate review in the Courts. The agency action is not final and ripe for review in the courts until the agency Final Decision is issued.3 As is described below, the disputed issue to be determined by these motions is whether the Respondent is in fact a depository institution within the meaning of the statute, and this question is best answered in the first instance by the administrative agency with particular technical expertise.4 Respondent has already appealed to the Federal courts5 where it sought a temporary injunction of enforcement of the assessment against it. At the conclusion of oral argument on January 4, 1993, the Court, by Judge Alfred V. Covello, enjoined the FDIC from appointing a receiver or otherwise enforcing the assessment against Respondent "pending the final adjudication on the merits of the jurisdictional and constitutional issues concerning FDIC's power to act."6 At the same time, the Court ruled that "The application with respect to its prohibiting the FDIC from commencing or proceeding with the hearing, however, is denied. Subject, however, to the caveat that...if that agency refuses to determine the issues raised by the Plaintiff in this proceeding, then a further application may be made to this court to take it up."7

II. Cross Motions for Summary Disposition

   On January 29, 1993, FDIC filed a Motion for Summary judgment.8 On February 22, 1993, Respondent opposed the motion and filed a cross-motion for summary disposition. FDIC opposed Respondent's motion for summary disposition on March 9,


1 Matter of Gould Publishing Co., 934 F.2d 457, 459-60 (2nd Cir. 1991, quoting Touche Ross & Co. v. SEC, 609 F.2d 570, 574 (2nd Cir. 1979); Dor v. District Director, INS, 697 F. Supp. 694, 697 (S.D.N.Y. 1988), aff'd; 891 F.2d 997 (2d Cir. 1989). See also, McCarthy v. Madigan, 112 Sup. Ct. 1081, 1086, that the requirement "serves the twin purposes of protecting administrative agency authority and promoting judicial efficiency."

2 Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41 (1938); Marshall v. Northwest Airlines, 574 F.2d 119 (2nd Cir. 1979).

3 FTC v. Standard Oil of California, 449 U.S. 232, 239-43 (1980); 927 F.2d 1345, 1352 (6th Cir. 9 U.S. 232, 239-43 (1980); Federal Savings Bank and Trust Co. v. Ryan, 927 F.2d 1345, 1352 (6th Cir.), cert. denied, 112 S. Ct. 187 (1991).

4 Gould Publishing, 934 F.2d at 460.

5 Meriden Trust Company v. Federal Deposit Insurance Corporation, Case No. 2-92-CV-967 (AVC), United States District Court, District of Connecticut.

6 Transcript on argument of motion, page 39.

7 The Court also ordered Respondent, in effect, not to alter its economic status quo without prior order of the Court.

8 In the parlance of the applicable Rules, such motions are for "Summary Disposition," and are hereafter so designated.
{{11-30-93 p.A-2310}}1993, and at the same time filed a reply9 to Respondent's opposition of its Motion. On March 15, 1993, Respondent replied to the agency's opposition.
   The primary purpose of a motion for summary disposition is to determine whether there are any disputed issues of fact necessitating a hearing. The movant has the burden of showing that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law. A "genuine" issue of fact has been interpreted as "triable," "substantial," or "real," and can be supported by evidence. 73 Am Jur2d § 27.
   The Uniform Rules of Practice and Procedure adopts the same showing necessary as the Federal Rules of Civil Procedure. Uniform Rule 29 states that the Administrative Law Judge shall recommend that the Comptroller issue a final order granting a motion for summary disposition after review of al evidentiary materials when there is no genuine issue as to any material fact and the moving party is entitled to a decision in its favor as a matter of law. 12 C.F.R. § 308.29.

A. The Facts

   The parties agree that no genuine issue of material fact exists. The facts are as follows:
   1. At all times pertinent to this proceeding the FDIC was and still is a public corporation operating in accordance with and subject to Title 12, Chapter 16, of the United States Code.
   2. At all times pertinent to this proceeding Respondent was and still is a "state bank and trust company" pursuant to section 36-2(i) of the Connecticut General Statutes. Central Bank was an insured state nonmember bank subject to the Federal Deposit Insurance Act (FDIA), 12 U.S.C. § 1811–1831 and the regulations thereunder, and to the laws of the State of Connecticut.
   3. On September 22, 1987, CenVest, Inc. became a bank holding company and acquired all of the outstanding capital stock of Central Bank, a "state bank and trust company" pursuant to section 36-2(i) of the Connecticut General Statutes, and a financial institution insured by the FDIC and subject to the FDIA.
   4. On November 22, 1988, CenVest acquired all the outstanding capital stock of Respondent, a financial institution insured by the FDIC and subject to the FDIA, which in addition to trust operations had a commercial bank division, accepted deposits, provided checking services and granted loans. CenVest transferred all of Respondent's assets and liabilities, except those relating to trust operations, to Central Bank.
   5. Respondent had applied to the FDIC for, and was issued deposit insurance on June 17, 1971. When Respondent was acquired by CenVest on November 22, 1988, the issue of whether to continue FDIC insurance was put to CenVest's Chairman, who decided to retain it in the sense of retaining the abilities, if not the functions, of a full service bank rather than later being required to reapply for the privileges conferred if it decided to renew full service operations. Respondent has paid its deposit insurance premiums, and filed the required "call reports," continuously to at least July 16, 1992.
   6. As of October 1991 and until February 1992, Respondent held an insured deposit of $100,000 in the name of Central Bank, and until May 1992 another insured deposit of $100,000 in the name of CenVest.
   7. October 18, 1991, Central Bank became insolvent and was later closed, the FDIC was appointed its receiver, by virtue of all of which Central Bank was in "default" as that term is defined in 12 U.S.C. § 1813(x)(1). Respondent is the only remaining subsidiary of CenVest.
   8. By letter dated January 28, 1992, Respondent informed the FDIC that it no longer considered itself an "insured depository institution" because it no longer accepted deposits.
   9. On October 16, 1992, FDIC issued the Notice of Assessment of Liability against Respondent as an insured depository institution liable for any loss incurred or reasonably anticipated to be incurred by the FDIC in connection with the default of a commonly controlled insured institution, in the amount of $151,852,000.

B. The Statutes Involved

   This case is brought under the cross guarantee provision, 12 U.S.C. § 1815(e), which provides in relevant part:

    Any insured depository institution shall be liable for any loss incurred by the Cor-

9 Both parties filed replies to the cross-opposition. Although the Uniform Rules do not provide for the filing of a reply, each shall be considered in making this ruling.
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    poration, or any loss which the Corporation reasonably anticipates incurring, after August 8, 1989 in connection with —
         (i) the default of a commonly controlled insured depository institution...
12 U.S.C. §1815(e)(1)(A). The FDIC must provide written notice to a commonly controlled institution within two years of suffering a loss, 12 U.S.C. § 1815(e)(1), and the assessed institution may seek judicial review after a hearing by an Administrative Law Judge and review by the FDIC's Board of Directors pursuant to 12 C.F.R. § 308.165. 12 U.S.C. § 1815(e)(3).
   In the terms of the statute, the commonly controlled entity must be an "insured depository institution," which is defined as "any bank or savings association, the deposits of which are insured by the Corporation..." 12 U.S.C. §1813(c)(2). "Any bank" is defined by §1813(a)(1)(A) to mean any national bank or State bank. The term "State bank" means any bank "engaged in the business of receiving deposits, other than trust funds..." 12 U.S.C. §1813(a)(2)(A). Since Respondent is a state bank it can be an "insured depository institution" within the jurisdiction of the agency for purposes of cross-guarantee only if it is "engaged in the business of receiving deposits." Both parties agree to this reading of the statute, but the phrase "engaged in the business of receiving deposits" is not defined and the parties put forth different interpretation of its meaning.
   After an institution has been granted the status of insured depository institution the process of termination, whether voluntary or involuntary, is limited by statute. Voluntary termination is governed by 12 U.S.C. § 1818(a)(1), which in part provides that voluntary termination may be had:
    ...if such insured institution provides written notice to the coloration of the institution's intent to terminate such status not less than 90 days before the effective date of such termination.
Further, 12 U.S.C. § 1828(I)(3) provides that:
       Without the prior written consent of the Corporation, no insured depository institution shall convert into a noninsured bank or institution.
Involuntary termination is governed by 12 U.S.C. § 1818(a)(2) and (3), which includes the right to an administrative hearing on the record, and the consideration of the indicia noted.

C. Arguments of the Parties

   FDIC agrees that Respondent has no deposits that are insured at this time, but points out that Respondent had not made any attempts to relinquish its status of an insured depository institution. FDIC further maintains the following: Respondent had not been granted authority to convert to an uninsured depository institution, had retained the benefits of deposit insurance, had a fully insured deposit account of $100,000 in the name of Central Bank and another fully insured $100,000 deposit account in the name of CenVest, and retained the right at any time to renew operations accepting non-trust deposits. Agency's position is that since Respondent has maintained its insured status and retained non-trust insured deposits, it remained a depository institution even without holding itself out to or serving the general public as a depository institution and remained subject to FDIC regulation and the cross-guarantee provisions of the FDIA until relieved of that obligation pursuant to the requirements of the statute.
   Respondent asserts that acceptance of a limited number of deposit accounts does not constitute being "engaged in the business of receiving deposits" without a showing of the intent to receive deposits from the public-at-large in the ordinary course of business. It acknowledges that it has accepted two deposits accounts from commonly controlled entities, but believes that this does not come within the intended meaning of the statute.

D. Discussion

   Meriden Trust looks to interpretive letters for guidance.10 The letters cited deal primarily with the eligibility of institutions to obtain insured depository institution status. Generally, the letters state that a trust company which is engaged in the business of receiving deposits, other than trust funds, is eligible for FDIC insurance. More specifically, the letters state that limited demand


10 FDIC Advisory Opinion No. 85-14 (1985), 85-23 (1985) and FDIC 88-67 (1988), at 1 FDIC Law, Regulation, Related Acts [P-H], 4184, 4191-92, and 4863-70 (1992).
{{11-30-93 p.A-2312}}deposit activity11 and acceptance of deposits only from its own employees12 may render the institution ineligible to obtain FDIC insurance since such limited activity does not constitute being "engaged in the business of receiving deposits." With one exception, the letters are not instrumental in determining whether limiting depository activity will cause the institution to loose its insured depository institution status once it already has been granted. That one exception is found in the letter FDIC-88-67, stating the following at page 55,285:
    "Likewise, should the FDIC determine that at trust company which has been granted FDIC insurance has ceased to be "engaged in the business of receiving deposits, other than trust funds," section 8(p) of the FDI Act (12 U.S.C. § 1818(p) requires the FDIC to terminate the insured status of the institution."
Accordingly, the agency has already ruled that it must revoke an institution's insured status upon determination that the agency no longer engages in the business of receiving deposits other than trust funds. A specific determination must be made, after a hearing on the record, which does not take effect until after the determination and order. 12 U.S.C. § 1818(a)(3).
   In the instant case, Respondent deliberately retained its insured status for the reason that it was easier to maintain that status then to obtain FDIC insurance fund at a later time, and to utilize its status to provide insurance on $200,000 of related non-trust deposits. Respondent argues that an institution can be an "insured institution" without being an "insured depository institution" under the FDIA. There is no support for this theory. Statutory references to an "insured institution" at 12 U.S.C. § 1817(a)(9), 1823(c)(2)(A), and 1823(f)(4), clearly relate to an "insured depository institution" since the purpose of the Act is to insure deposits. Had a non-depository institution been considered for insurance purposes surely such an institution would have been specially defined, which is not the case. Therefore, the undersigned does not read the Act as intending to permit Respondent to maintain its insured status with the coverage of limited deposits by affiliated institutions and with the potential of accepting deposits from both affiliates and the general public as and if it wishes, and at the same time allowing Respondent to escape cross-guarantee liability.
   Where an institution relinquishes its nontrust depository nature, which includes surrendering the potential for accepting non-trust deposits without reapplication, then it must also give up its insured status and the accompanying benefits. Conversely, if an institution deliberately acts, by paying premiums and filing call reports, to maintain its insured status with current insurance plus the potential of accepting non-trust deposits at any time, then it has not truly relinquished its status as an "insured depository institution" under the Act. The statutory scheme of bank regulation charges the appropriate governmental agencies "with the task of overseeing that banking system for the protection of the public and the national economy as a whole, and not for the benefit or protection of individual banking institutions."13 A banking institution granted the advantages of insured status bears the public burden of cross-guarantee of loss to the insurer through a commonly controlled insured depository institution, and to permit it to evade the public burden for the private benefit is contrary to the scheme of regulation.
   Accordingly, Respondent's Motion for Summary Disposition is denied.
   The only disputed issue, the legal issue of whether Respondent is or was an insured depository institution, has been determined. Since Respondent is subject to cross-guarantee liability and there is no issue of material fact in dispute, the undersigned recommends that FDIC's Motion for Summary Disposition be granted, and that an Order similar to the Recommended Order attached hereto and made a part hereof should issue.

RECOMMENDED ORDER

   The Board of Directors of the Federal Deposit Insurance Corporation ("FDIC") having considered the entire record in this proceeding including the Notice of Assessment and Order of Default in answering, finds that pursuant to 12 U.S.C. § 1815(e), the above insured depository institution shall be liable for (1) any loss incurred by the Corporation in connection with the default of a commonly controlled insured depository institution, or (2) any assistance provided by


11 FDIC 85-23 (1985).

12 FDIC-88-67 (1988).

13 First Nat. Bank of Scotia v. United States, 530 F. Supp. 162, 166 (District of Columbia, 1982).
{{12-31-93 p.A-2313}}the Corporation to any commonly controlled insured depository institution in danger of default, as hereinafter set forth.

ORDER TO PAY

   After consideration of the foregoing and such other matters as justice may require, it is:
   ORDERED, pursuant to section 5(e)(2)(A) of the Act, 12 U.S.C. § 1815(e)(2)(A), and by reason of the factors set forth in the Notice of Assessment herein, the amount of $151,852,000 is hereby assessed against the Liable Institution, The Meriden Trust and Safe Deposit Co., of Meriden, Connecticut, is due and payable immediately, pursuant to the provisions of section 5(e)(2)(B)(ii) of the Act, 12 U.S.C. § 1815(e)(2)(B)(ii), and may be satisfied by the direct payment, in cash, to the FDIC of the sum of $151,852,000 by the Liable Institution.
   /s/ Hoyle L. Robinson
   Executive Secretary

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