Hindes v. Federal Deposit Insurance Corporation

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (the financial-reform act) provided the Federal Deposit Insurance Corporation (FDIC) (defendant) broad powers and duties to serve as receiver for distressed banks and sought to ensure the FDIC could maximize gains and minimize losses to its insurance fund. In 1982, Western Savings Fund Society of Philadelphia (Western) was financially distressed. The FDIC requested that Meritor Savings Bank (Meritor) (plaintiff) assume the deposit liabilities of Western. A key aspect of persuading Meritor to assume the liabilities of Western was the FDIC’s grant to Meritor of the right to amortize nearly $800 million in goodwill (grandfathered goodwill) to increase Meritor’s regulatory capital base. Worth noting, the takeover of Western by Meritor saved the FDIC $400 million. The agreement regarding the goodwill was reduced to writing, and the two parties abided by the agreement for over 10 years. In 1992, the FDIC adopted final regulations that created doubt regarding whether Meritor could continue including the grandfathered goodwill as capital. Meritor requested clarification, which the FDIC refused to provide. Because of the confusion created by the regulations, over $300 million in deposits were withdrawn from Meritor. Soon after, the FDIC formally notified Meritor that the FDIC was reneging on the 1982 agreement and that the grandfathered goodwill could not be included in Meritor’s capital base. At the same time, the FDIC delivered Meritor a notification stating that Meritor was in violation of capital-maintenance requirements. The FDIC threatened to cancel Meritor’s deposit insurance if Meritor did not meet the capitalization requirements, which created a crisis for Meritor. Subsequently, the Pennsylvania Secretary of Banking (the secretary) (defendant) closed Meritor, using the crisis to justify the immediate closing. The secretary appointed the FDIC as receiver of Meritor. Meritor, Gary Hindes, and other shareholders of Meritor (plaintiffs) sued the FDIC, claiming that the FDIC had violated their substantive-due-process rights. The district court held that the financial-reform act precluded judicial review of Meritor’s claims and dismissed the claims on a motion for summary judgment. Meritor appealed.