No. 98-970
In the Supreme Court of the United States
OCTOBER TERM, 1998
WILLEM RIDDER, ET AL., PETITIONERS
v.
OFFICE OF THRIFT SUPERVISION, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
BRIEF FOR THE RESPONDENTS IN OPPOSITION
SETH P. WAXMAN
Solicitor General
Counsel of Record
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
CAROLYN J. BUCK
Chief Counsel
THOMAS J. SEGAL
Deputy Chief Counsel
DIRK S. ROBERTS
Assistant Chief Counsel
Office of the Chief Counsel
Office of Thrift Supervision
Washington, D.C. 20552
QUESTIONS PRESENTED
1. Whether the court of appeals correctly held that petitioners' challenge
to a temporary cease-and-desist order issued by the Office of Thrift Supervision
is barred by 12 U.S.C. 1818(i)(1).
2. Whether dismissal of petitioners' suit pursuant to Section 1818(i)(1)
violates petitioners' rights under the Due Process Clause of the Fifth Amendment.
3. Whether this Court's decision in Leedom v. Kyne, 358 U.S. 184 (1958),
provides a basis for the district court to exercise jurisdiction over petitioners'
suit.
In the Supreme Court of the United States
OCTOBER TERM, 1998
No. 98-970
WILLEM RIDDER, ET AL., PETITIONERS
v.
OFFICE OF THRIFT SUPERVISION, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
BRIEF FOR THE RESPONDENTS IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. A1-A14) is reported at 146
F.3d 1035. The opinion of the district court (Pet. App. B1-B9) is unreported.
JURISDICTION
The judgment of the court of appeals was entered on July 17, 1998. A petition
for rehearing was denied on September 17, 1998 (Pet. 2). The petition for
a writ of certiorari was filed on December 14, 1998. The petition invokes
the jurisdiction of this Court under 28 U.S.C. 1254(a) (see Pet. 2), which
we assume to be a reference to 28 U.S.C. 1254(1).1
STATEMENT
1. Petitioners are former officers of a second tier subsidiary of CityFed
Financial Corporation (CityFed). CityFed is a holding company that was created
in 1984 to acquire City Federal Savings Association (City Federal), a federally
insured savings association. The Federal Home Loan Bank Board, the predecessor
of respondent Office of Thrift Supervision (OTS), approved that acquisition
subject to the condition that CityFed maintain City Federal's net worth
at the required level and, if necessary, infuse additional equity capital
into City Federal. CityFed failed to honor that condition. In 1989, OTS
declared City Federal insolvent and appointed the Resolution Trust Corporation
(RTC) as receiver. Pet. App. A3-A4.
In 1994, acting pursuant to 12 U.S.C. 1818(b), OTS commenced an administrative
enforcement proceeding against CityFed and seven of its current and former
officers. OTS charged that CityFed and its officers had permitted City Federal's
net worth to fall $118 million short of minimum regulatory capital requirements,
and the agency sought restitution in that amount. At the same time, pursuant
to 12 U.S.C. 1818(c), OTS issued a temporary cease-and-desist order (Temporary
Order) against CityFed to prevent further dissipation of CityFed's assets,
which had shrunk considerably after the RTC's appointment as receiver for
City Federal. The Temporary Order, which remains in place, bars CityFed
from transferring funds or assets, except for payment of its own operating
expenses, not to exceed $15,000 per month, and its own legal expenses. Petitioners
are not parties to the administrative proceeding brought by OTS against
CityFed. They are not named in the Temporary Order and were not served with
that Order. Pet. App. A4-A5, A10.
2. In 1992, the RTC commenced a separate proceeding against petitioners
in the United States District Court for the District of New Jersey, alleging
fraud and breach of fiduciary duty. Petitioners sought advancement of their
defense costs from CityFed pursuant to a provision of CityFed's bylaws.
After CityFed refused payment, petitioners filed an action to compel CityFed
to advance the funds. Pet. App. A5.
The district court denied petitioners' motion for a preliminary injunction.
Ridder v. CityFed Fin. Corp., 853 F. Supp. 131 (D.N.J. 1994). The court
of appeals reversed and remanded to the district court. Ridder v. CityFed
Fin. Corp., 47 F.3d 85 (3d Cir. 1995). In light of the limited record before
it, however, the court of appeals specifically declined to address the impact
of the Temporary Order. Id. at 87-88.
On remand, the district court entered an injunction directing CityFed to
advance petitioners' defense costs. CityFed appealed, contending that the
injunction conflicted with the Temporary Order. In an unpublished opinion
issued in April 1996, the Third Circuit vacated the injunction, finding
that the Temporary Order barred CityFed from advancing petitioners' legal
fees and expenses, and again remanded the case to the district court. See
Pet. App. A6.
3. In the interim, CityFed and its directors brought an action against OTS
to enjoin enforcement of the Temporary Order. The district court denied
the motion for a preliminary injunction. CityFed Fin. Corp. v. OTS, 919
F. Supp. 1 (D.D.C. 1994). The court of appeals affirmed, upholding OTS's
authority to issue the Temporary Order and finding that CityFed and its
directors had failed to demonstrate irreparable harm. CityFed Fin. Corp.
v. OTS, 58 F.3d 738 (D.C. Cir. 1995); Pet. App. C1-C21. After the D.C. Circuit
issued its decision, CityFed sought permission from OTS to pay the costs
that petitioners incurred in defending against the RTC action. Id. at A6.
OTS refused to permit CityFed to make the payment. Ibid.
4. Petitioners then filed this action against OTS, alleging that the Temporary
Order deprived them of their right to receive advance payment of attorneys'
fees from CityFed in violation of various constitutional provisions. The
district court dismissed petitioners' complaint, holding that it lacked
subject matter jurisdiction to consider their claims. Pet. App. B1-B9.
The district court relied on 12 U.S.C. 1818(i)(1), which provides in relevant
part that "except as otherwise provided in this section * * * no court
shall have jurisdiction to affect by injunction or otherwise the issuance
or enforcement of any notice or order under [this] section, or to review,
modify, suspend, terminate, or set aside any such notice or order."
Petitioners contended that their suit was authorized by 12 U.S.C. 1818(c)(2),
which states that "[w]ithin ten days after the depository institution
concerned or any institution-affiliated party has been served with a temporary
cease-and-desist order, the depository institution or such party may apply
to the United States district court * * * for an injunction." The district
court found that provision to be inapplicable to petitioners' suit, explaining
that petitioners "are not the 'depository institution concerned' or
an 'institution-affiliated party' who has been served with a Notice of Charges
or a cease and desist order." Pet. App. B7. The court acknowledged
that petitioners "have been harmed by the effect of the Temporary Order
and the OTS administrative proceeding," but it concluded that "this
injury does not confer jurisdiction on the Court to enjoin the effect of
that Order." Id. at B8.
5. The court of appeals affirmed. Pet. App. A1-A14. The court first held
that Section 1818(c)(2) was inapplicable to petitioners' suit and that the
suit was therefore barred by Section 1818(i)(1). Id. at A8-A11. The court
explained that "[b]ecause [petitioners] were not served with (or named
in) the Notice of Charges or the Temporary Order, they * * * are statutorily
ineligible to file suit under" Section 1818(c)(2). Id. at A10.
The court of appeals also rejected petitioners' alternative argument that
the district court should have exercised jurisdiction pursuant to Leedom
v. Kyne, 358 U.S. 184 (1958), and its progeny. Pet. App. A11-A12. The court
relied on Board of Governors v. MCorp Financial, Inc., 502 U.S. 32 (1991),
in which this Court held that 12 U.S.C. 1818(i), unlike the statutory scheme
at issue in Kyne, "provides * * * clear and convincing evidence that
Congress intended to deny the Dis- trict Court jurisdiction to review and
enjoin the [banking agencies'] ongoing administrative proceedings."
MCorp, 502 U.S. at 44 (quoted at Pet. App. A12).
The court of appeals also held that petitioners had failed to make a clear
and convincing showing that the Temporary Order violated their constitutional
rights. Pet. App. A12-A14. The court observed that "the Fifth Amendment's
Due Process Clause 'does not apply to the indirect adverse effects of government
action.'" Id. at A13 (quoting O'Bannon v. Town Court Nursing Ctr.,
447 U.S. 773, 789 (1980)). The court explained that petitioners
were not named in the Temporary Order, nor did the Temporary Order serve
to restrict [petitioners'] use of their own assets. Accordingly, any harm
the [petitioners] have suffered from the issuance of the Temporary Order
was a consequential result of a lawful action OTS directed towards [CityFed],
and therefore was no due process violation.
Ibid. The court noted as well that CityFed, "the directly regulated
party, * * * had a strong interest in challenging the Temporary Order, as
evidenced by its separate lawsuit challenging the order." Id. at A14.2
ARGUMENT
The decision of the court of appeals is correct and does not conflict with
any decision of this Court or of any other court of appeals. Further review
is not warranted.
1. Petitioners contend (Pet. 23-26) that, because they are employees of
City Federal, a "depository institution," they are "institution-affiliated
part[ies]" authorized to bring suit under 12 U.S.C. 1818(c)(2). That
argument is without merit. Section 1818(c)(2) provides that "[w]ithin
ten days after the depository institution concerned or any institution-affiliated
party has been served with a temporary cease-and-desist order, the depository
institution or such party may apply to the United States district court
* * * for an injunction." Even assuming that petitioners could be characterized
as "institution-affiliated" persons, they have not been served
with the Temporary Order and are not parties to the administrative proceeding.
See Pet. App. A10. They are consequently not entitled to seek judicial review
of the Temporary Order pursuant to Section 1818(c)(2).
2. Contrary to petitioners' suggestion (Pet. 8-15), this case does not present
any question concerning congressional power to foreclose all judicial review
of OTS actions. Section 1818(c)(2) provides for review of temporary cease-and-desist
orders-including the Temporary Order at issue in this case-in an action
brought by the "depository institution concerned" or by "institution-affiliated
part[ies]" that have been served with the temporary order to cease
and desist. Indeed, CityFed and its directors invoked that provision in
their unsuccessful challenge to the Temporary Order. See pp. 3-4, supra.
In addition, should OTS issue a final order against CityFed in the underlying
administrative proceeding, CityFed will have the right to challenge that
order in an action brought in the court of appeals pursuant to 12 U.S.C.
1818(h)(2).
Thus, both the Temporary Order and any final order entered by OTS will be
subject to judicial review. The fact that petitioners are not among the
parties authorized to seek review of those orders is neither anomalous,
cf. Block v. Community Nutrition Inst., 467 U.S. 340, 349-352 (1984), nor
unconstitutional. This Court has repeatedly held that "the due process
provision of the Fifth Amendment does not apply to the indirect adverse
effects of governmental action." O'Bannon v. Town Court Nursing Ctr.,
447 U.S. 773, 789 (1980). The Due Process Clause "has always been understood
as referring only to a direct appropriation, and not to consequential injuries
resulting from the exercise of lawful power." Ibid. (quoting Legal
Tender Cases, 79 U.S. (12 Wall.) 457, 551 (1870)).
As the court of appeals recognized (see Pet. App. A13), any harm that petitioners
may have suffered from the Temporary Order is simply an indirect and consequential
result of the OTS's lawful exercise of enforcement authority against CityFed.
The Temporary Order was issued against CityFed, not petitioners. It restrains
CityFed's use of its assets and does not restrict in any way petitioners'
use of their own funds. CityFed -the party directly affected by the Temporary
Order --has a strong incentive to contest the government's enforcement action
and, indeed, has pursued such a challenge. Id. at A13-A14; compare O'Bannon,
447 U.S. at 790 n.22. Although petitioners were undoubtedly affected by
the Temporary Order, they have no constitutional right to a hearing on the
propriety of that administrative action.3
3. Petitioners' reliance (Pet. 18-20) on Leedom v. Kyne, 358 U.S. 184 (1958),
is misplaced. As this Court observed in Board of Governors v. MCorp Financial,
Inc., 502 U.S. 32 (1991), "the clarity of the congressional preclusion
of review in" Section 1818(i)(1) distinguishes this case from Kyne.
502 U.S. at 44; see Pet. App. A12. In this case, as in MCorp, Section 1818(i)(1)
"provides * * * clear and convincing evidence that Congress intended
to deny the District Court jurisdiction." 502 U.S. at 44.
4. Even if the questions presented otherwise warranted this Court's review,
the current posture of the various proceedings involving OTS, the RTC, petitioners,
and CityFed would make review inappropriate. As noted above (see note 2,
supra), petitioners have settled the action that the RTC brought against
them. The only claim that petitioners brought in the instant suit is a claim
for advancement of costs to facilitate their defense of that action. Now
that the RTC action against them has been settled, however, petitioners'
claim for advancement of costs is essentially moot, leaving only a potential
claim for indemnification.
At this stage of the administrative enforcement proceedings against CityFed,
it is unclear whether OTS will issue a final cease-and-desist order against
CityFed pursuant to 12 U.S.C. 1818(b)(1). If OTS issues such an order, CityFed
will have the opportunity to challenge it pursuant to 12 U.S.C. 1818(h)(2).
See p. 7, supra. If the charges against CityFed are ultimately dismissed,
the Temporary Order will dissolve and no longer bar CityFed from disbursing
funds. See 12 U.S.C. 1818(c). It is therefore uncertain what permanent impact,
if any, the administrative proceedings against CityFed will ultimately have
on petitioners' ability to recoup the costs of their defense.
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
CAROLYN J. BUCK
Chief Counsel
THOMAS J. SEGAL
Deputy Chief Counsel
DIRK S. ROBERTS
Assistant Chief Counsel
Office of the Chief Counsel
Office of Thrift Supervision
FEBRUARY 1999
1 The petition identifies Jonathan L. Fiechter, a former Acting Director
of the Office of Thrift Supervision, as a respondent. Ellen S. Seidman,
the current Director, is the proper party respondent.
2 After the District of Columbia Circuit issued its decision in this case,
petitioners settled the action brought against them by the RTC. See Pet.
8. We are informed by OTS that the enforcement proceeding against CityFed
remains pending before an administrative law judge.
3 Petitioners' reliance (Pet. 20-23) on Coit Independence Joint Venture
v. FSLIC, 489 U.S. 561 (1989), is misplaced. The Court in Coit held that
a claimant was not required to comply with an administrative exhaustion
requirement imposed by agency regulation where delays in the administrative
process rendered that remedial scheme inadequate. Id. at 586-587. Nothing
in Coit suggests that delays in an administrative enforcement process can
serve as a basis for a federal court to adjudicate claims falling outside
its statutory jurisdiction.
Petitioners also assert (Pet. 3), without explanation, that the issue raised
in their petition is "similar" to the question before the Court
in Reno v. American-Arab Anti-Discrimination Committee, No. 97-1252 (argued
Nov. 4, 1998). We disagree. Apart from the fact that both cases present
questions concerning the authority of the federal courts to review specific
categories of administrative action, there is no meaningful similarity between
the two.