Franklin Savings Association v. Director, Office of Thrift Supervision

Franklin Savings Association (Franklin) (plaintiff) was a stock savings and loan association that had been in business since 1889. In 1981, Franklin adopted a more aggressive business strategy that involved heavy investing in mortgage-backed derivative securities and junk bonds. In 1990, the Director of the Office of Thrift Supervision (the director) (defendant) had determined that Franklin was in an unsafe and unsound condition, that Franklin had depleted and could not replenish its capital, and that Franklin had committed unsafe or unsound legal practices likely to cause prejudice to its depositors’ interests. These findings were based on three volumes of documents, including reports of examinations, financial reports filed by Franklin, supervisory directives, and the results of an independent audit. The director subsequently appointed a conservator for Franklin. Franklin filed an action in district court to remove the conservator. The director argued that the district court should base its review solely upon the administrative record compiled by the director. The district court instead permitted Franklin to introduce additional evidence, cumulating in an 18-day bench trial with live testimony from 25 witnesses, depositions from 18 witnesses, and 650 trial exhibits. The district court had essentially made its own findings, compared them to the director’s findings, and decided the conservator was wrongly appointed. The director appealed the court’s order to remove the conservator.