FSLIC v. Ticktin

PETITIONER:FSLIC
RESPONDENT:Ticktin
LOCATION:Unemployment Insurance Office

DOCKET NO.: 87-1865
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 490 US 82 (1989)
ARGUED: Feb 27, 1989
DECIDED: Apr 03, 1989

ADVOCATES:
James B. Koch – on behalf of the Respondents
Richard G. Taranto – on behalf of the Petitioner

Facts of the case

Question

Audio Transcription for Oral Argument – February 27, 1989 in FSLIC v. Ticktin

William H. Rehnquist:

We’ll hear argument first this morning in No. 87-1865, Federal Savings and Loan Insurance Corporation v. Ticktin.

Mr. Taranto?

Richard G. Taranto:

Mr. Chief Justice, and may it please the Court.

This case presents the question whether the FSLIC, or FSLIC, as the receiver of an insolvent state-chartered savings and loan has access to Federal court to bring a damages action against directors and officers of the Institution for their violations of duties imposed by Federal as well as state law.

Two jurisdictional statutes are involved: Section 1345 of Title 28 which provides generally for Federal agency jurisdiction in Federal court, and Section 1730(k)(1) of Title 22… of Title 12 which more specifically addresses jurisdiction in cases involving FSLIC.

The court of appeals held that there was no Federal jurisdiction over this case under either of those statutes.

William J. Brennan, Jr.:

Mr. Taranto, do I understand that a new statute has been introduced that would abolish FSLIC?

Richard G. Taranto:

Yes, a new bill has been introduced.

It was introduced last Wednesday, the administration’s comprehensive FSLIC bail-out bill.

We sent a letter up to the Court on Friday that attempted to outline some of the provisions that would be… would be relevant.

As of now, of course, the bill is merely proposed and–

William J. Brennan, Jr.:

Were it to be enacted, though, that would end this case, would it not?

Richard G. Taranto:

–It… it may well end this case.

The… the new bill would create a new transition entity that would take the place of FSLIC for all current receiverships and receiverships for the next three years.

That new entity has a special jurisdictional provision which contains no exception to Federal jurisdiction.

We would believe that that would, in fact, solve the jurisdictional problem here, although there may be some argument about that.

This case arose as a result of two dividends declared by Respondents as directors of the Manning Savings and Loan Association, a state-chartered thrift that was insured by FSLIC.

In 1980 Manning’s directors declared a dividend of more than $400,000.

The dividend was doubly illegal and it was excessive by more than $300,000 because Manning had insufficient net worth and reserves under the FSLIC’s regulations and, therefore, also under state law.

In late 1981 after FSLIC charged Manning… Manning’s directors with having violated the Federal requirements, a cease and desist order was entered by a Federal court prohibiting Manning’s directors from paying any dividends except in accordance with state law.

In April 1982, FSLIC issued new charges advising Manning’s directors that Manning now had operating losses of roughly $300,000 per month and had a negative net worth of more than 2 million… of more than $500,000 which was more than $2 million short of the amount required to maintain its FSLIC insurance.

Despite those charges, Respondents as directors of Manning declared a dividend worth more than $300,000 the following month.

That dividend, like the 1980 dividend, was illegal under both Federal and state law and was, therefore, also a violation of the Federal cease and desist order.

In February 1983, the Federal Home Loan Bank Board found that Manning was insolvent and had incurred substantial dissipation of assets as a result of illegal and unsafe practices.

The Board therefore placed Manning in receivership and appointed FSLIC to be the receiver.

In that capacity, FSLIC brought this suit against Respondents in May 1983.

The complaint, among other things, sought damages under state law for Respondents’ breach of their state law fiduciary duties.

In support of the claim, FSLIC alleged that Respondents violated Federal obligations in several ways: by declaring dividends that were illegal under the Federal net worth and reserve requirements, by causing Manning to violate the Federal conflict of interest regulations, and by causing Manning to violate the cease and desist order.

Respondents moved to dismiss for lack of Federal jurisdiction.

The district court found that there was jurisdiction, but certified an interlocutory appeal on the question.

Richard G. Taranto:

The court of appeals reversed concluding that under Section 1730(k)(1) there was no Federal jurisdiction in this case.

Section 1730(k)(1) has four parts.

The first, Clause (A), declares that FSLIC is an agency within the meaning of the definitional section of Title 28.

The second part, Clause (B), sweepingly declares that all civil suits to which FSLIC is a party are deemed to arise under the laws of the United States and are within the district court’s jurisdiction.

Clause (C) grants broad removal authority, but is not specifically at issue in this case.

Finally, there is the proviso which declares that any suit to which FSLIC is a party in its capacity as receiver of a FSLIC-insured state-chartered institution and

“which involves only the rights or obligations of investors, creditors, stockholders and such institution under state law shall not be deemed to arise under the laws of the United States. “

The court of appeals concluded that the proviso applied to this case and precluded Federal jurisdiction.

First the court ruled that the proviso’s requirement that the case involve

“only the rights or obligations of investors, creditors, stockholders and the institution. “

is satisfied whenever, as in this case, the only rights in the case are those of the falled thrift.

Second, the court ruled that a case involves

“only rights or obligations under state law. “

whenever, as is true here, the cause of action arises only under state law, even if Federal law questions are involved in determining if state law was violated.

Since Manning was a state-chartered thrift and the claims at issue were brought by FSLIC in its capacity as receiver of Manning, the court of appeals held that the proviso applied and precluded the broad Federal question jurisdiction granted by Clause (B) of Section 1730(k)(1).

The court further concluded that despite the declaration in Clause (A), that FSLIC is an agency for Title 28 purposes, the proviso must also preclude the Federal agency jurisdiction that would otherwise be available under 28 U.S.C. 1345.

In the court’s view, the Section 1730(k)(1) proviso was designed to state an absolute limit on Federal jurisdiction under any jurisdiction granting statute.

My argument today is that the court of appeals was incorrect in all three of its conclusions and that both Section 1730(k)(1)’s Clause (B) and Section 1345 furnish jurisdiction over this cases.

xxx.

Richard G. Taranto:

Yes, that’s correct.

We have to win on… on only… only one of the arguments.

The… there is something of a difference in the relative importance for other cases of the… the various positions.

The… the… our first point about the limitation of the proviso to disputes among proviso parties is the one that has divided the courts of appeals, but the other issues are also important in other cases.

William H. Rehnquist:

And your reliance on 1345 goes back through Subsection A of (k)(1).

Richard G. Taranto:

Yes.

We… we think that 1345 would apply even without Clause (A) of… of Section 1730(k)(1) because Clause (A) merely confirms what would be evident in any case; namely, that FSLIC, when acting as a receiver, is a Federal agency carrying out Federal programs.

And hence, for example, the very similar jurisdictional statute that applies to the FDIC, which contains no analogue to Clause (A), would reach… we would reach the same result.

There would also be Section 1345 jurisdiction for the FDIC.

Anthony M. Kennedy:

Does Section 1345 jurisdiction vindicate the government’s position here more extensively than your reliance on part B of the statute?

Richard G. Taranto:

I can’t tell you which covers a larger number of cases.

Richard G. Taranto:

There is a very substantial overlap because most of the cases that involve non-proviso parties, directors, officers, debtors, are also cases that are brought by FSLIC and, hence, there would be jurisdiction under… under both of them.

I’m not sure whether one of the classes of cases is… is actually larger than the other.

It is a rare thing for FSLIC to sue one of the proviso parties, and that… that suggests that maybe the… our first argument about the limitation of the proviso to the named parties is… is a somewhat broader argument.

Antonin Scalia:

Mr. Taranto, which is the wrongest of the three?

[Laughter]

Richard G. Taranto:

Well, I… I hesitate to… to say which… which error is of greater magnitude.

The… the one that probably jumps more plainly off the face of the statute is the… is the Section 1345 argument because that argument is one that… that we think is… is just flatly inconsistent with the language of the proviso.

Our other two arguments are arguments for the better interpretation of the–

John Paul Stevens:

But… but if that is correct, why is not the proviso totally redundant?

Richard G. Taranto:

–Well, the proviso would still cover ordinary cases involving claims by… by creditors, shareholders, investors seeking to, in effect, get a piece of the pie to divide up the receivership estate.

Ordinarily those would be claims brought simply to enforce the state law rights of–

John Paul Stevens:

But… but there would be no Federal jurisdiction in those claims anyway, would there?

Richard G. Taranto:

–Well, absent the proviso, there would under Clause (B) because Clause (B) says there is always Federal jurisdiction whenever FSLIC is a party.

John Paul Stevens:

There’s always a Federal question.

Richard G. Taranto:

Yes, and hence, there would be… there would be Federal jurisdiction.

Clause (B) eliminates the usual–

John Paul Stevens:

Whereas the agency rationale only applies when FSLIC brings the case, is that the difference?

Richard G. Taranto:

–Yes, that’s right.

Yes.

Richard G. Taranto:

That’s right.

Okay.

Richard G. Taranto:

And the court of… under the court of appeals’ view, Clause (A) would… would effectively be read out of the statute because if the proviso eliminates jurisdiction under 1345, as well as under Clause (B), then Clause (A) adds nothing whatever to the… to the statute.

The jurisdictional provisions at issue here reflect the important Federal programmatic interests that are at stake when FSLIC as receiver tries to recover from directors and officers whose violations of their legal obligations have led to the failure of thrifts all across the nation.

Congress provided for FSLIC to act as receiver of state thrifts precisely because of the important Federal interest at stake, and the present crisis in the FSLIC-insured thrift system starkly confirms Congress’ judgment.

The ability to collect from directors and officers of failed thrifts, among others, directly affects the amount of money that the FSLIC fund can recover for its payouts in a particular receivership.

It also may affect the health of the FSLIC insurance fund as a whole and, hence, the ability of FSLIC to handle other thrift failures and ultimately the U.S. Treasury if, as has happened, the fund proves inadequate.

In addition to the financial effect, recovering from directors and officers in particular serves the broader Federal interest in deterring future misconduct and future thrift failures.

In all of those ways, there is a strong Federal interest in… in FSLIC’s ability to pursue claims in each receivership, and that is why Section 1730(k)(1) Clause (B) broadly declares that there is Federal jurisdiction whenever FSLIC is a party, and that is why Clause (A) confirms that FSLIC, like any other agency that is specifically authorized to sue, may bring its suits in Federal court.

The proviso as an exception to those grants of jurisdiction should be read against this background.

And all three grounds for reversing the court of appeals reflect the important Federal interests at stake in suits like the present one.

William H. Rehnquist:

Well, does the proviso apply only to Subsection B or does it apply to Subsection A too?

Richard G. Taranto:

Well, we think that… that it… it does not apply to Clause (A) because Clause (A) in confirming that FSLIC is an agency, confirms that Section 1345 of Title 28 grants jurisdiction.

That’s a jurisdiction that does not depend at all on whether there’s a Federal question.

And the proviso merely says in cases in which it applies, those cases shall not be deemed to arise under laws of the United States.

So, the proviso eliminates Federal question jurisdiction, but leaves any other basis of jurisdiction that would otherwise be available unimpaired.

Section 1345 is just such a basis of jurisdiction.

Our first argument concerning the non-proviso parties was that the court of appeals erred in concluding that this case, to quote the proviso,

“involves only the rights or obligations of investors, creditors, stockholders and the failed thrift. “

This case involves, in addition to the rights of Manning, the failed thrift, also the obligations of directors and officers, and… and directors and officers are not among those listed in the proviso.

The proviso we think by its terms is properly construed not to apply unless the dispute is solely among parties listed in the proviso with FSLIC representing the failed thrift.

This construction is the only one that accounts for the decision by Congress to list particular parties as it did, listing those with claims against the receivership, as well as the… the failed thrift and omitting such persons as directors, officers and debtors who are commonly sued by a receiver.

If the court of appeals were correct that the proviso applies whenever the only rights involved are those of the failed thrift, then the listing of investors, creditors and stockholders would be read out of the statute.

The listing also undermines Respondents’ view that the provision contemplates FSLIC’s representing the interests of the named parties, for FSLIC as a receiver of a failed thrift always must represent the failed, thrift and the collective interests of its investors, creditors and stockholders.

The listing is simply given no effect in Respondents’ view.

In addition, Respondents’ suggestion invokes a wholly unrealistic picture of a unity of interests among the listed parties.

In fact, a very substantial number of suits involving FSLIC as receiver pit the obligations of the failed thrift against those of investors or creditors or stockholders.

And as we explained in our brief, it is entirely plausible that among all the persons who might be parties to a suit involving FSLIC as a receiver, Congress omitted the likely defendants in suits brought by the receiver and instead listed only those who have claims against the receivership estate, insiders who are more likely to initiate suit to recover from the estate than to be sued.

The process of dividing up the estate among claimants is traditionally centralized in the single forum having jurisdiction over the estate property, and where that forum was a state authority for state thrifts, the proviso was needed to make possible the continued centralizing of claims by insiders in that forum.

By contrast, the process by which a receiver brings suit against outsiders to collect debts to the receivership estate is not traditionally centralized, and there was, therefore, no corresponding need to carve out an exception to the broad grant of Federal jurisdiction.

The second way we believe that the court of appeals erred was in concluding that this case

“involves only rights or obligations under state law. “

That is not so in this case.

This case also involves the obligations of Respondents under Federal law.

In particular, the complaint alleges a central support for the claimed breach of duty that Respondents violated their obligations under the Federal regulation requiring the maintenance of specified reserves and net worth under a Federal conflict of interest regulation and under the Federal cease and desist order.

The court of appeals was wrong because it read the proviso to apply whenever the cause of action arises under state laws, as the right to damages does in this case.

But the proviso does not use that familiar term in referring to the rights or obligations that are involved in covered cases.

By contrast, Section 1730(k)(1) elsewhere twice uses the “arises under” language, once in the proviso itself.

The proviso does not apply where the case involves obligations under Federal law, as this one does.

That Congress granted Federal jurisdiction whenever questions under Federal law are involved in a case is fully in keeping with the policy reflected in the sweeping declaration of Clause (B), that all cases involving FSLIC are deemed to arise under Federal law.

And it also is consistent with our first point, that the proviso was designed in claims against the receivership assets in mind.

Richard G. Taranto:

Such suits, unlike suits brought by FSLIC as receiver, often involve only state law questions.

Suits against directors and officers, by contrast, often involve Federal duties that are imposed in order to maintain a sound thrift system.

The third way we believe the court of appeals erred was in ruling that the proviso ousts Federal courts of jurisdiction under Section 1345.

The language of the proviso will not support such a ruling.

The proviso simply declares that cases within its coverage

“shall not be deemed to arise under the laws of the United States. “

That language eliminates only arising under Federal question jurisdiction.

It leaves jurisdictional bases for no Federal question is necessary wholly unaffected.

Section 1345 establishes one such basis.

A Federal agency may bring suit in Federal court regardless of whether its claim arises under Federal or state law.

The proviso, therefore, leaves Section 1345 jurisdiction unimpaired.

There is no reason to depart from this plain reading of the proviso.

To the contrary, as I have explained, reading the proviso to eliminate Federal agency jurisdiction, as well as Section 1730(k)(1)’s Clause (B) Federal question jurisdiction, would render Clause (A) redundant because Clause (A) and the Section 1345 jurisdiction… it confirms would then be… never be available unless Clause (B) jurisdiction were not also–

Byron R. White:

So, your argument… your argument is that even though a case might be literally within the meaning of the proviso, 1345 saves it.

Richard G. Taranto:

–A case that comes literally within the meaning of… within the coverage of the proviso would still come within 1345 jurisdiction because the proviso merely says there’s no Federal question jurisdiction.

It doesn’t say there’s no Federal agency jurisdiction, there’s no diversity Jurisdiction, there’s no other jurisdiction that might otherwise be available without regard to whether the case arises–

Byron R. White:

So, you don’t think the proviso should even be… even… it wasn’t a general intent to keep this kind of litigation out of Federal court.

Richard G. Taranto:

–Well, I think that’s right.

The history of the proviso accounts for what may well have been some inadvertence to the full range of… of implications.

This proviso for FSLIC was enacted in 1966.

It was essentially copied from the FDIC’s proviso, its jurisdictional statute, which had been enacted back in 1935.

Byron R. White:

Well, if Congress wanted to keep… keep state law cases out of Federal courts, it’s a little odd to say that they nevertheless would let them in under 1345.

Richard G. Taranto:

Well, we don’t think that there is any evidence that Congress broadly wanted to keep all state law cases out of Federal court.

In fact, Clause (B) suggests exactly the opposite.

It says that in general all you need is for FSLIC to be a party, and we deem it to arise under Federal law, and the case will be in Federal court even if absent FSLIC’s party status the case would be entirely one under state law.

We think that the better interpretation here is that the proviso was aimed only at this process of dividing up the estate–

Byron R. White:

Well, what about the… what about the Federal law claims that… that are stated here?

Richard G. Taranto:

–Well, those… those claims have been dismissed and… and we have not appealed from the ruling that the particular Federal–

Byron R. White:

So, you would say that the… the Federal law claims that were stated in this complaint would… if they’re covered by the proviso, they also cannot be litigated under 1345.

Richard G. Taranto:

–Well, the Federal… I’m… I’m not quite sure I understand.

Richard G. Taranto:

Federal law claims–

Byron R. White:

Well, you say there were Federal law claims stated in the complaint.

Richard G. Taranto:

–Yes.

And the district court ruled that there was no private right of action or no right of action to… to sue under this.

Byron R. White:

I know, but my question is suppose that those Federal law claims are covered by the proviso.

Richard G. Taranto:

Well, they… they wouldn’t be because the proviso specifically covers only cases involving rights or obligations under state law.

Byron R. White:

I see.

Richard G. Taranto:

So, they would… they would be outside the proviso in any–

Byron R. White:

But… but so you could litigate the… the Federal law claims under 1345 also.

Richard G. Taranto:

–Yes, or under 1331–

Byron R. White:

Yes–

Richard G. Taranto:

–or under Clause (B).

Byron R. White:

–Okay.

Richard G. Taranto:

With… if there were actual Federal questions involved, there would be numerous bases of jurisdiction.

Question: Mr. Taranto, may I… maybe this is a stupid question, but what is the constitutional basis for agency jurisdiction?

Well, it is at least the provision of Article III that gives the Federal courts jurisdiction over all controversies involving… to which the United States is a party, which is a separate jurisdictional basis from arising under jurisdiction.

In fact, I think there is a very substantial argument that any of… any case involving the rights or obligations of a Federal agency can be made by Congress into a case arising under Federal law.

That would be consistent with the traditional approach that this Court has taken in Federal common law cases.

John Paul Stevens:

Well, if you treat it as a case arising under Federal law, you would run into the language of the proviso I suppose.

Richard G. Taranto:

Well, except… except that the… the arising under heading of Article III I think has always been broader than the arising under jurisdiction of 1331, there being no well-pleaded complaint rule and such.

Congress–

I see what you’re saying.

Richard G. Taranto:

–Congress here says that whenever the… whenever FSLIC is a party to a case, we deem all of those cases to arise under Federal law.

We think that’s… that would be… even absent the… the Article III heading of controversies involving the United States, which is in any event the primary basis… even absent that, that would be consistent with this Court’s cases in Kimball Foods and other… and other cases–

John Paul Stevens:

In the proviso language it says shall not be deemed to arise under the laws of the United States would mean not under the laws of the United States within the meaning of Article III, but rather within the meaning of the statute granting Federal question jurisdiction.

The proviso only… only… only cuts back on statutory Federal question jurisdiction in other words.

Richard G. Taranto:

–I think that… I think that’s right.

John Paul Stevens:

One could read it the other way.

I–

Richard G. Taranto:

Right.

Richard G. Taranto:

In… in any event, it wouldn’t… it wouldn’t extend into those jurisdictional bases that don’t depend on Federal question jurisdiction either–

John Paul Stevens:

–But then… then one has to assume that at Federal agency is III.

Richard G. Taranto:

–Yes, that’s right.

John Paul Stevens:

Has that… have we had any cases deciding what the constitutional foundation of Federal agency jurisdiction is?

I’m not… I’m not aware of any, but I just–

Richard G. Taranto:

I’m… I’m not aware of any off the top of my head either.

–Thank you.

Richard G. Taranto:

If the Court has no further questions, I would like to save the balance of my time.

William H. Rehnquist:

Very well, Mr. Taranto.

Mr. Koch, we will hear from you now.

James B. Koch:

Mr. Chief Justice, and may it please the Court.

It is a matter of congressional intent that state courts in the first instance should decide an issue of state law and Federal courts in the first instance should decide an issue of Federal law.

However, it’s Petitioner’s position in this case that due to the significance of their role as a Federal regulator, the volume of litigation and the spate of failures, for their own convenience, they seek a uniformity of decisions through the Federal courts.

The problem with following that policy lies in the fact that in this specific instance and in numerous others, the Federal court is bound by the state’s highest court when it has considered that same issue.

And in a case such as this where the state court has not ruled, the Federal court could rule.

That could be appealed to the Federal appellate court on up to this Court and then at that or any other time, the state court could rule contrary to the decision of the Federal courts.

And you would, in fact, develop a dual body of law.

I believe that this case and the construction of 1730(k)(1) can’t properly be decided without some notion of the specifics involved and the general policy as determined by the Senate report on the Financial Institution Supervisory Act which states… and I quote… that

“the general policy for the supervision and regulation of state savings and loans are primarily the states’ affairs. “

The specific cases we are talking about here are collection cases.

When the FSLIC comes into state court as a receiver for a state savings and I can, the type of cases that flood the state courts are student I can defaults, can defaults, eviction notices, letters of credit.

It’s that huge volume of cases that the Congress I believe determined to keep out of Federal courts.

And that’s why they set up for the FDIC and the FSLIC a unified integrated scheme of jurisdiction.

In that scheme the FDIC or the FSLIC, under either 12 U.S.C. 1819 Fourth or 12 U.S.C. 1730(k)(1), in its corporate capacity as the Federal insurer would go into Federal court, but as the receiver would take those cases which properly belong in state court to state courts.

And quoting from the courts that have previously determined this, for example, FDIC v. Elefant, in referring to the legislative history, the courts noted that it was designed to prevent the fact of receivership from transferring wholesale to Federal court the money collection suits and related litigation in which a failed thrift will become embroiled.

William H. Rehnquist:

Well, Mr. Koch, how do you explain the existence of Subsection A then where they say FSLIC shall be deemed to be an agency of the United States?

And then 1345 says when the United States is plaintiff, the court has jurisdiction.

James B. Koch:

That… I would explain it as follows.

In 1966 there was pending in the Ninth Circuit the case of Acron v. FSLIC.

Prior to 1966, the only way FSLIC could come into Federal court was if it was a Federal agency, and 13… and the district court in that case determined that FSLIC was a Federal agency, deemed it… there was a dispute as to the question of law… certified it to the Ninth Circuit.

James B. Koch:

And contrary to Petitioner’s brief… and I believe I have it in the footnote at my last page of my brief… the fact is in… in March the Congress added to clarify that it, in fact, was a Federal agency.

I believe that’s the reason for it, and I don’t believe the reason was to wipe out or read out of existence the proviso, merely to clarify that the FSLIC was an agency.

William H. Rehnquist:

Section A was added after the rest of 1730(k)(1) was in place?

James B. Koch:

Section A was added in 1966 to clarify that… that FSLIC was an agency, and that was the… under the Financial Institution Supervisory Act which amended both 1819 and drafted 1730(k)(1).

William H. Rehnquist:

Well, but once you provide that the FSLIC is an agency, why doesn’t 1345 kick in?

James B. Koch:

Thirteen forty-five begins with the phrase “except as otherwise provided”.

And I believe that the proviso in this case is just that.

To read 1345 as precluding all cases which would come under the proviso would send into Federal court this floodgate of litigation that I’ve just described and, in effect, read out of the proviso.

The proviso would have no effect whatsoever.

Antonin Scalia:

Well, that’s not so.

It… it would have an effect in suits against FSLIC where FSLIC… I mean, 1345 only… only applies where FSLIC is the… is the plaintiff–

James B. Koch:

That’s correct.

Antonin Scalia:

–So, why do you say it would have no effect whatsoever?

James B. Koch:

Well, on those suits brought against… where the FSLIC came in as a receiver and went after debtors, presumably if… if 1345 jurisdiction overrode that proviso–

Antonin Scalia:

It wouldn’t have effect in those suits, but it would have effect in other suits, wouldn’t it?

James B. Koch:

–Yes, that’s… I agree.

Byron R. White:

It would also… It, wouldn’t require the receiver to go into Federal court.

He would just have a choice.

James B. Koch:

That’s true.

He would have the choice.

But if they’re seeking a uniformity of law in Federal courts and if that’s the policy reason… I think the difference I have with the Petitioner is that they see that statute as being to determine the rights of the claimants against the assets of the receivership, whereas both the Senate report and policy would indicate that the FSLIC is there on its own behalf on the rights of the institution, the parties named.

The investors, the creditors and the stockholders are generally those parties who would have an interest in common with the FSLIC in its pursuit of suits going after debtors in the type of cases I’ve referred to.

Antonin Scalia:

Mr. Koch, you said the purpose of adding A was to clarify that FSLIC was a Federal agency.

I mean, that’s… that’s very nice, but what was the purpose of clarifying it?

Wasn’t the… the main consequence of being a Federal agency is coming under 1345 and I assume the removal statute as well.

It doesn’t make any sense to me or it is no explanation to me anyway to simply say, well, the only purpose of A was to clarify that it was a Federal agency.

James B. Koch:

But it–

Antonin Scalia:

Why was it clarified?

It was clarified principally because of 1345 I would think.

James B. Koch:

–I believe it was clarified… and the Congressional Code bears this out… that… to make clear that the corporation is an agency of the United States because at that time in the Acron case there was a dispute in the Ninth Circuit whether or not it was an agency so they could have access to the Federal courts.

Antonin Scalia:

Well, yes, but I mean disputes don’t arise in the abstract, two people saying I am agency.

No, you’re not.

I am.

You’re not.

I mean, who cares?

James B. Koch:

Well–

Antonin Scalia:

Unless something hinges upon it.

And the main thing that hinges upon it is 1345, isn’t it?

James B. Koch:

–I agree.

John Paul Stevens:

And that’s what hinged on it in the Ninth Circuit case, isn’t it?

Wasn’t that a jurisdictional dispute?

James B. Koch:

It was.

John Paul Stevens:

And so, Congress resolved that by saying there shall be jurisdiction in such a case.

James B. Koch:

It did.

And… and I would still submit that the 1345 a; saying that all those cases when FSLIC comes in on behalf of a failed thrift, a savings and I can, would in effect read out… read the proviso out of existence.

The original proviso in this case, 12 U.S.C. 1819, upon 1730(k)(1) is based contained only the grant of original jurisdiction and the limiting proviso.

And substantially similar language in 1730(k)(1) I would submit is also a grant of original jurisdiction and the limiting proviso.

Byron R. White:

Well, you wouldn’t… you don’t… you don’t say that the proviso keeps out of Federal court suits by… by the agency asserting a Federal law claim.

James B. Koch:

If there was a… a Federal law claim that predominated or was the cause of action in the suit, no, I would submit that that would be exactly what the proviso and this statute had in mind.

In this case it’s whether there is a breach of fiduciary duty under state law.

Byron R. White:

You… you say… there is just no bona fide Federal claim in this case you say?

James B. Koch:

I think that anytime that FSLIC comes–

Byron R. White:

But that isn’t the way I understood the United States.

James B. Koch:

–Well, I would… I would disagree.

I think the Seventh Circuit was correct in pointing out that anytime FSLIC or FDIC or a Federal agency is involved in the regulation of a state savings and loans or a thrift, there is always going to be a Federal issue.

For example, he cites in his brief the… the criminal allegations.

In fact, those were separated from this case.

One of the Respondents in this case, Harold Ticktin, was in fact prosecuted in Federal court.

That would have no place in the state.

Byron R. White:

Assuming that there’s a bona fide Federal issue stated in a… in a suit like this and a bona fide state law claim made, you would say you would have to go to different courts.

James B. Koch:

No, I would… I would… what is the cause of action in this suit?

If, in fact, that there were both, I would say that they would have the right to go into Federal court, But in this specific–

Byron R. White:

And take the state cause of action there too?

James B. Koch:

–No, I think not.

Byron R. White:

So, you would think… have to pursue the claims in separate courts.

James B. Koch:

Well, I think that specifically in this case the cause of action is a breach of fiduciary duty under state law.

FSLIC is saying that the Respondents issued dividends in violation of the state Savings and Loan Act, which made no reference whatsoever to FSLIC requirements.

And that’s what the Seventh Circuit actually described as the cause of action in this court.

The resolution of that issue is the resolution of the case regardless of other Federal causes of action that… that may arise.

None are… none predominate in this case.

All support the… the theory that it’s a state savings and loan construction statute.

That’s a cause of action that must ultimately be construed.

With respect to the subject of proviso parties, I would submit the Seventh Circuit was… made the proper decision here.

In the case of FDIC v. Elefant, the FDIC informed the Seventh Circuit in that case that the presence of a non-proviso party would still deprive the Federal courts of Jurisdiction.

That was their position in the Seventh Circuit as recently as 1986.

Directors are those type of adverse parties that the FSLIC would naturally come into court to proceed against.

And I would submit that when the FSLIC comes into court to enforce the rights of the institution and the resolution of those rights is the only question in the suit, then the suit involves only the rights or obligations of the institution regardless of who the defendants are.

And interpreted in that fashion and interpreted with a policy basis to keep these many, many collection cases out of Federal court, the focus being brought by the receiver, both the FSLIC and the FDIC, serves that useful purpose.

Again, it keeps those case out of Federal court.

I would submit that the Financial Institution Supervisory Act which set out this jurisdictional scheme for both the FDIC and the FSLIC and a contrary ruling in today’s case in the FSLIC would set up a separate scheme.

The FDIC could go into state court, state causes of action on an identical case if it was the same cause of action for… for a bank as opposed to a savings and I can.

I would submit that that’s not the provision… or not the intent of Congress.

Finally, with respect to the agency argument, I would only point out that it was added, according to Congress, to clarify a reading or a construction of… of Section A that would read out of existence.

The proviso would not fulfill policy and, In fact, would say that all those cases that came into… or the FSLIC went into Federal court to resolve could then automatically go into… to Federal court.

To give Federal courts indirectly what they couldn’t have through the proviso I believe would be a… a fractured route to go.

I have nothing further.

William H. Rehnquist:

Thank you, Mr. Koch.

Mr. Taranto, do you have rebuttal?

Richard G. Taranto:

Nothing further.

William H. Rehnquist:

Very well.

William H. Rehnquist:

The case is submitted.