LUCILLE RILEY, PETITIONER V. FEDERAL DEPOSIT INSURANCE CORPORATION No. 90-7732 In The Supreme Court Of The United States October Term, 1990 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Fifth Circuit Brief For The Federal Respondent In Opposition OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1-2) is unreported, but the judgment is noted at 923 F.2d 852 (Table). The opinion of the district court (Pet. App. 3-8) is also unreported. JURISDICTION The judgment of the court of appeals was entered on January 2, 1991. The petition for a writ of certiorari was filed on March 25, 1991. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether the Federal Deposit Insurance Corporation correctly determined that petitioner had no insured deposit in Eden State Bank when it failed. STATEMENT 1. In July of 1984, petitioner's husband, H.J. Riley, purchased a $52,075.80 certificate of deposit, numbered 353, from Eden State Bank ("ESB") in the names of "Lucille Riley OR H.J. Riley." SRE 7. /1/ On March 15, 1985, Mr. Riley renewed one of several loans from ESB and executed a promissory note, payable to ESB, in the amount of $146,136.68. Mr. Riley pledged as security for the loan his "deposit accounts and other rights to the payment of money from (ESB)." Mr. Riley expressly agreed in the promissory note that ESB had "the right to set-off (the) note against any obligation" that ESB had toward Mr. Riley. SRE 16, 29-30, 37. On July 2, 1985, Lucille and H.J. Riley "rolled over" the deposit represented by Certificate 353. ESB issued a new certificate, numbered 573, in the amount of $55,019.72. Again, the certificate was issued in the name of "Lucille Riley OR H.J. Riley." SRE 9. In connection with issuing this new certificate, ESB required Mr. Riley to execute a continuing "Assignment of Savings Account." This instrument, dated July 2, 1985, provided that the funds represented by Certificate 573 would serve as security for the payment of any debts owed by Mr. Riley to ESB, and expressly authorized ESB to charge such debts against the Rileys' account. SRE 18. On September 24, 1985, more than three months prior to the maturity date of Certificate 573, petitioner and her son went to ESB and represented to Margean Haynes, a bank officer, that the bank president told them they could replace Certificate 573 with a new certificate in petitioner's name alone. Relying on that representation, Ms. Haynes issued certificate of deposit No. 752 in the name of "Lucille Riley, Indivual (sic)." The original paper certificate was given to petitioner. SRE 11, 41-45. Later that day, the bank president advised Ms. Haynes that he had never agreed to issue a new certificate in petitioner's name alone. Ms. Haynes then wrote "void" on the copy of Certificate 752 and reinstated Certificate 573 in ESB's files. Ms. Haynes also wrote a memorandum to the file indicating that she had called petitioner and told her that, because petitioner was unwilling to sign an assignment of Certificate 752 as collateral for her husband's promissory notes, Certificate 752 would be voided and Certificate 573 would be reinstated. SRE 13, 19, 43-48. Petitioner did not attempt to renew or cash Certificate 752 when it matured. Pet. App. 5. On January 2, 1986, when Certificate 573 matured, the deposit was renewed and the Rileys received a new certificate of deposit, numbered 1034, again in the name of "Lucille Riley OR H.J. Riley." SRE 9, 14. When Certificate 1034 matured on July 18, 1986, ESB set-off the entire principal and accrued interest (totaling $57,202.42) against Mr. Riley's note at ESB because that note was in default. The set-off was in accordance with a provision in Certificate 1034 (contained in all the certificates issued to the Rileys) allowing set-off against existing indebtedness, without notice, if the debt was in default. SRE 15, 22-23. 2. On July 31, 1986, the FDIC was appointed Receiver for ESB. The FDIC, in its corporate capacity, was responsible for paying insurance (up to the $100,000 limit) on all insured accounts. After ESB's failure, petitioner attempted to "redeem" Certificate 752, the voided certificate. SRE 27-28. The FDIC examined the records of ESB and discovered copies of Certificates 353, 573, 752, and 1034, and also discovered the Assignment of Savings Account and the Haynes memorandum regarding the voiding of Certificate 752. The FDIC also reviewed lists of all certificate of deposit accounts at ESB at the time of failure, and reports detailing the payment history and amounts due on commercial loans. All the bank records reviewed by the FDIC disclosed that $57,202.42 (the original deposit, plus accrued interest) was set-off against H.J. Riley's $146,136.68 loan. The FDIC determined that no certificate of deposit account in the name of petitioner existed at ESB at the time the bank failed. SRE 55-63. Accordingly, the FDIC denied petitioner's claim for deposit insurance. 3. On June 15, 1989, petitioner filed this lawsuit in the United States District Court for the Northern District of Texas against FDIC, as insurer of deposits ("FDIC-Corporate"), and against FDIC as Receiver for ESB. RE 1. At trial, petitioner withdrew her claim against FDIC as Receiver. Pet. App. 8. After a bench trial on March 13, 1990, the district court ruled in favor of the FDIC. After reviewing the applicable federal statutes and implementing regulations, the court held that "the FDIC was entitled to rely on the Bank's records on the date of closing, and that such records did not reflect an existing certificate of deposit in the name of Lucille Riley, individually, or jointly with any other person." Pet. App. 7. The court of appeals affirmed in an unpublished order, relying on the findings of fact and authority cited by the district court. The court noted that "the facts are certain and undisputed, and the controlling rubrics of law are clear and dispositive." Pet. App. 2. ARGUMENT Petitioner argues (Pet. 1-8) that the FDIC erred in deciding that petitioner did not hold an insured depsit at ESB. The courts below correctly applied settled principles of law to undisputed facts. The decision does not conflict with any decision of this Court or of any court of appeals. Further review is therefore not warranted. 1. Petitioner contends (Pet. 1-4, 5-6, 7-8) that the district court erred in "relying solely upon the bank's records to determine (FDIC's) liability." As the court of appeals and the district court noted, the FDIC's regulations provide that "the deposit account records of the insured bank shall be conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insured coverage is founded." 12 C.F.R. 330.1(b)(1) (1986); see also 12 U.S.C. 1822(c). Exclusive reliance upon the deposit account records is necessary to enable the FDIC, following the closing of an insured bank, to calculate the amounts of the insured deposits quickly in order to make an expeditious payment on the insured accounts or to transfer those accounts to another institution. See Abdulla Fouad & Sons v. FDIC, 898 F.2d 482, 485 (5th Cir. 1990); Jones v. FDIC, 748 F.2d 1400, 1405 (10th Cir. 1984). Further, prohibiting depositors from contradicting unambiguous account records serves to discourage fraudulent claims for insurance coverage. Abdulla Fouad, 898 F.2d at 485. Because the records of the bank demonstrated conclusively that petitioner did not hold an insured deposit at the time the bank failed, the FDIC properly rejected petitioner's claim. /2/ Even if the FDIC has an obligation in some cases to look beyond the bank's records, there was no need for it to do so here. Petitioner's only submission to the district court -- the original of Certificate 752 which she had in her possession when ESB was declared insolvent -- was duplicative of the records kept by the bank. Indeed, it was less complete than the bank's records in that it failed to indicate that Certificate 752 had been voided by the bank because petitioner had represented that the bank's president had authorized the issuance of a new certificate to her alone when, in fact, he had not. Petitioner has therefore suffered no harm from FDIC's failure to look at her records to determine whether she held insured deposits at ESB. 2. Petitioner also contends (Pet. 4-5) that the FDIC should be estopped from denying the validity of her claim because ESB's bank officers "chose to void Petitioner's Certificate of Deposit without giving her any kind of notice." This contention is incorrect as a factual matter. Ms. Haynes, the bank officer, testified at trial that she called petitioner and her husband to notify them that she was voiding Certificate 752 and reinstating Certificate 573 because of petitioner's misrepresentation, SRE 42-48, and Ms. Haynes's memorandum to the file confirms her testimony, id. at 19. Based on this evidence, the district court found that petitioner had, in fact, been notified that Certificate 752 was being cancelled, Pet. App. 5, and the court of appeals affirmed that finding, Pet. App. 2. Petitioner offers no basis for challenging the district court's finding on this point. In any event, petitioner abandoned her claim to recover for any wrongful acts ESB may have committed in voiding Certificate 752. Petitioner stated at trial, through her attorney, that she no longer wished to pursue her claim against the FDIC as Receiver based on ESB's wrongful acts. Her claim against FDIC as Receiver was therefore dismissed with prejudice. Pet. App. 8. Thus, whatever claim petitioner might have had under this theory cannot now be asserted against the FDIC in its corporate capacity as insurer of deposits because the FDIC, in that capacity, is not liable for the alleged wrongful acts of a failed bank. See, e.g., In re F & T Contractors, Inc., 718 F.2d 171, 180 (6th Cir. 1983). CONCLUSION The petition for writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General MARK I. ROSEN Deputy General Counsel DOROTHY L. NICHOLS Associate General Counsel ANN S. DuROSS Assistant General Counsel JOAN E. SMILEY Counsel J. SCOTT WATSON Senior Attorney Federal Deposit Insurance Corporation JUNE 1991 /1/ "RE" and "SRE" refer, respectively, to the record excerpts and the supplemental record excerpts before the court of appeals. /2/ Petitioner mistakenly relies on Jones v. FDIC, 748 F.2d 1400 (10th Cir. 1984), for her argument that the conclusive account records of the bank may be challenged with her records. Jones held only that, when the bank's records are not accurate and complete, extrinsic evidence may be used to challenge the FDIC's determination of a trustee's or executor's relationship. Here, ESB's account records unambiguously and accurately reflected petitioner's dealings with ESB.