Landmark Land Co., Inc. v. Office of Thrift Supervision

• Court: Court of Appeals for the Fifth Circuit
• Decided: May 3, 1993
• Docket: 91-3930
• Status: Published

Opinion

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 91-3930 _____________________

LANDMARK LAND COMPANY, INC., ET AL.,

Plaintiffs-Appellees,

versus

OFFICE OF THRIFT SUPERVISION and TIMOTHY RYAN, Director,

Defendants-Appellants.

_______________________________________________________

Appeal from the United States District Court for the Eastern District of Louisiana _______________________________________________________

(April 29, 1993)

Before WILLIAMS, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

The Office of Thrift Supervision (OTS) appeals from the

district court's granting of injunctive relief to both Landmark

Land Company, Inc. (Landmark) and some of its directors, the

individual plaintiffs. The OTS had issued a temporary cease-and-

desist order against Landmark and the other plaintiffs. The order

prohibited them from dissipating the assets of the subsidiaries of

a savings association and also froze their personal assets pending

the resolution of the underlying administrative cease-and-desist

1 proceeding. The district court's injunction suspended the

temporary order. On appeal, the OTS argues that the district court

erred substantively and procedurally in granting the preliminary

injunction. We find that the district court erred procedurally,

and we vacate and remand the injunction for reconsideration by the

district court.

I. FACTS AND PRIOR PROCEEDINGS

Plaintiff-Appellees Gerald G. Barton, Bernard G. Ille, William

W. Vaughan, III, and Joe W. Walser, Jr. were the directors of

plaintiff-appellee Landmark Land Company, Inc., a Delaware

corporation and holding company. Since the mid-1970s, Landmark has

developed and operated several golf courses and resort communities.

In 1982 Landmark acquired a financially troubled thrift in New

Orleans, Louisiana and renamed it Landmark Savings Bank, S.S.B. (a

savings bank chartered by the State of Louisiana). In 1986

Landmark Savings Bank acquired another thrift, to which it

transferred its assets in 1989. The resulting thrift was named Oak

Tree Savings Bank, S.S.B. (Old Oak Tree).

Old Oak Tree owned Clock Tower Place Investments, Ltd. (Clock

Tower), a first-tier subsidiary. Clock Tower in turn owned

numerous second-tier subsidiaries, including Landmark Land Company

of California, Inc.; Landmark Land Company of Carolina, Inc.;

Landmark Land Company of Oklahoma, Inc.; Landmark Land Company of

Florida, Inc.; and Landmark Land Company of Louisiana, Inc.

2 (collectively, the subsidiaries). Barton, Ille, Vaughan, and

Walser served as directors of both Landmark and Old Oak Tree.

Barton, Vaughan, and Walser also served as directors and/or

officers of various ones of the subsidiaries.

In August 1989, Congress passed the Financial Institutions

Reform, Recovery, and Enforcement Act of 1989 (FIRREA).1 Of

critical importance was the change in the capitalization

requirements by FIRREA so that Landmark could no longer use its

real estate holdings to capitalize Old Oak Tree. Although Landmark

sought to sell the golf courses and resort properties held by its

subsidiaries, it was unsuccessful. Between April 1990 and

September 1991, Landmark entered into two contracts to sell the

subsidiaries' real estate holdings. Both contracts, however, fell

through. The OTS refused to approve the first, and after the OTS

stepped in to renegotiate the second, the buyer withdrew the offer.

Meanwhile, Old Oak Tree was incurring significant losses in

1989, 1990, and 1991. After failing to meet minimum capital

requirements in July 1990, Old Oak Tree submitted a capital plan

that OTS rejected. Then, in January 1991, Old Oak Tree and OTS

executed a Consent Agreement that imposed certain restrictions and

requirements on the management of Old Oak Tree. Old Oak Tree

1 FIRREA abolished both the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation, and it created the Office of Thrift Supervision (OTS) to oversee and regulate savings associations.

3 agreed among other things to obtain prior written approval from OTS

before entering into “any material transaction.”

After the second sales contract fell through, the boards of

directors of the six subsidiaries met in October 1991 to consider

their options. Barton, Walser, and Vaughan were present at several

of these meetings, but chose to abstain from voting. The boards

voted to file Chapter 11 bankruptcy, and such a filing occurred on

October 11, 1991, in the United States Bankruptcy Court for the

District of South Carolina. Each subsidiary then obtained from the

South Carolina bankruptcy court a temporary restraining order,

which prevented Old Oak Tree and the OTS from exercising

shareholder rights to change management to enable withdrawal of the

bankruptcy petitions.

The OTS responded on October 13, 1991, by invoking its

statutory powers pursuant to 12 U.S.C. § 1818 to commence a cease-

and-desist proceeding. The OTS has the authority to pursue cease-

and-desist proceedings against an institution and any institution-

affiliated parties (such as directors and officers) when it decides

that they are engaging in unsound business practices, violating the

law, or breaching an agreement with the OTS. 12 U.S.C.

§ 1818(b)(1). Such a proceeding was commenced in this case by

filing a Notice of Charges setting out the allegations and

scheduling an administrative hearing. The OTS then appointed the

Resolution Trust Corporation (RTC) as receiver for Old Oak Tree and

4 chartered Oak Tree Federal Savings Bank of New Orleans, Louisiana

(New Oak Tree).

The Notice of Charges filed against the plaintiffs alleged

that the individual plaintiffs had breached their fiduciary duties

by acting to file the bankruptcy petitions and by failing to inform

the OTS either of the impending bankruptcy or of their conflict of

interest. The Notice of Charges further asserted that the

plaintiffs had violated the Consent Agreement, and the OTS imposed

civil monetary penalties: one million dollars on each of the

individual directors, and on Landmark $500,000 plus an additional

$500,000 for each day beyond October 13 that the individual

plaintiffs failed to withdraw the bankruptcy petitions.

The OTS undertook to act under its authority to issue broad

temporary cease-and-desist orders when it determines that the

unsound practice or violation is “likely to cause insolvency or

significant dissipation of assets.” 12 U.S.C. § 1818(c)(1). Such

a temporary cease-and-desist order may be entered without a hearing

and may require affirmative action. Parker v. Ryan, 959 F.2d 579,

581-82 (5th Cir. 1992). A temporary order becomes effective upon

service, but the institution receiving the order has ten days

within which it can seek judicial review. 12 U.S.C. § 1818(c)(1)

and (2).

5 The OTS issued the Temporary Order To Cease and Desist (the

Temporary C&D), and it drastically limited the plaintiffs'

authority and froze the personal assets both of the plaintiffs and

of their family members. The plaintiffs timely applied to the

district court in New Orleans to set aside, limit, or suspend the

Temporary C&D pursuant to 12 U.S.C. § 1818(c)(2). Although the

district court denied the plaintiffs' initial request for a

temporary restraining order, it scheduled a preliminary injunction

hearing for November 1, 1991. Before the hearing, however, the

South Carolina bankruptcy court issued findings and enjoined the

RTC from exercising any shareholder rights over the subsidiaries

and their management. On November 1, the Louisiana district court

took notice of the bankruptcy court's findings, suspended the

Temporary C&D, and sua sponte transferred the plaintiffs'

application to the South Carolina bankruptcy court.

The RTC appealed the South Carolina bankruptcy court's

injunction, and the OTS appealed the Louisiana district court's

transfer. On November 26, 1991, a panel of this court held that it

was error to transfer the application to South Carolina and denied

the OTS's motion to stay the preliminary injunction pending the

appeal of that order. Landmark Land Co., Inc. v. Office of Thrift

Supervision, 948 F.2d 910 (5th Cir. 1991). The South Carolina

bankruptcy court's injunction was subsequently reversed by the U.S.

Court of Appeals for the Fourth Circuit. Thus, the RTC was

authorized to assert its ownership rights over the subsidiaries.

6 In re Landmark Land Co. of Okla, Inc., 973 F.2d 283 (4th Cir.

1992). At the end of 1992, the RTC was continuing to operate the

subsidiaries under the jurisdiction of the bankruptcy court.

Over a year has passed since the OTS filed the Notice of

Charges and commenced the underlying administrative action, and

that action has not yet concluded. The Louisiana district court's

injunction suspending the Temporary C&D, however, remains in effect

and is the subject of this timely appeal by the OTS.

II. DISCUSSION

To obtain a preliminary injunction, the plaintiffs had to show

(1) that there was a substantial likelihood they would succeed on

the merits, (2) that they faced a substantial threat of irreparable

harm without the injunction, (3) that the threatened injury

exceeded any harm that would flow from the injunction, and (4) that

the injunction would not undermine the public interest. United

Offshore Co. v. Southern Deepwater Pipeline Co., 899 F.2d 405, 407-

08 (5th 1990). Although the district court must apply a stringent

standard, our review is limited generally to considering whether

the district court abused its discretion. Doran v. Salem Inn,

Inc., 422 U.S. 922, 931-32, 95 S.Ct. 2561, 2568, 45 L.Ed.2d 648

(1975). We review findings of fact for clear error. FED. R. CIV.

P. 52(a). We review de novo the legal questions decided by the

district court. United Offshore Co., 899 F.2d at 407.

7 The parties have argued extensively the merits of the

preliminary injunction. Our review, however, does not reach the

merits because the district court did not reach them. The

plaintiffs had filed their complaint and an application for a

temporary restraining order, which they supplemented with a

memorandum of law for the preliminary injunction hearing. The OTS

had filed its response to the application. At the preliminary

injunction hearing, the district court had before it those

documents and the findings of the bankruptcy court. The district

court, however, did not consider the four inquiries required for a

preliminary injunction. Instead, the district court was concerned

about the concurrent bankruptcy proceeding in South Carolina, and

it decided to transfer the action to South Carolina “in the

interest of judicial economy.” By its injunction, the district

court suspended the operation of the Temporary C&D until the

bankruptcy court in South Carolina could take up the matter.

Although we vacated the transfer as improper, the Temporary C&D

remains suspended pending our decision on this appeal.

The district court did not consider the contentions of the

parties, nor did it take further evidence to determine whether a

preliminary injunction was warranted. We conclude that the

district court abused its discretion by failing to apply the four

criteria for preliminary injunctions when it granted the

suspension. The plaintiffs ask us to affirm the injunction, and

the OTS argues that we should reverse and render. Neither action,

8 however, is appropriate. We vacate the injunction and remand the

case to the district court. The district court must determine

whether the plaintiffs can make a proper showing and are entitled

to suspension of the Temporary C&D.

In addition to failing to apply the proper criteria, the

district court did not comply with Federal Rules of Civil Procedure

52(a) and 65(d). Rule 52(a) mandates that the district court issue

findings of fact and conclusions of law when it grants an

injunction. Rule 65(d) requires the district court to set forth in

specific terms its reasons for issuing the injunction. The

district court stated generally its reasons for suspending the

Temporary C&D and took notice of the findings of the bankruptcy

court, but failed to issue specific findings.

The plaintiffs argue that the South Carolina bankruptcy

court's findings justify the suspension of the Temporary C&D and

have preclusive effect in the instant case. They assert that the

OTS is barred from relitigating the findings because they are based

upon issues that (1) are identical to those involved in the prior

litigation, (2) have been actually litigated, and (3) have been “a

critical and necessary part of the judgment in the earlier action.”

Terrell v. DeConna, 877 F.2d 1267, 1270 (5th Cir. 1989).

This argument fails for two reasons. First, issue preclusion

does not apply. The question before the court in South Carolina

9 was whether it should enjoin the RTC from exercising shareholder

rights over the subsidiaries and from denying Landmark and its

officers access to books and records. The Temporary C&D was not

before the bankruptcy court and has little to do with the RTC's

rights as receiver. Additionally, of course, the Fourth Circuit

reversed the bankruptcy court's injunction. As the United States

Supreme Court has noted, “[E]ven if the second suit is for a

different cause of action, the right, question, or fact once so

determined must, as between the same parties or their privies, be

taken as conclusively established, so long as the judgment in the

first suit remains unmodified.” Southern Pac. R.R. v. United

States, 168 U.S. 1, 48-49, 18 S.Ct. 18, 27, 42 L.Ed. 355 (1897)

(see 18 WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 4416 (1981)).

Although the first suit was as yet unmodified when the district

court suspended the Temporary C&D, it has since been reversed, and

the original findings clearly can have no preclusive effect.2

The second reason the plaintiffs' contention fails is

exemplified by Seattle-First National Bank v. Manges, 900 F.2d 795,

799-800 (5th Cir. 1990). In that case, the district court had

adopted the magistrate's findings of fact and had issued a

preliminary injunction. Although we held that the district court

2 The OTS also argues that issue preclusion is inapplicable because there is no privity between the parties. The plaintiffs counter that decisions rendered against one federal agency have preclusive effect against another, citing 18 WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 4458 (1981). In light of our determination above, we need not consider this contention.

10 did not abuse its discretion in granting the injunction because the

movant had made the proper showing, we nevertheless remanded the

case to the district court so it could issue its own findings.

More is required here since the district court merely took notice

of the bankruptcy court's findings. We also recognize that an

appellate court can review a district court record in the absence

of findings and conclusions as long as (1) the record is

exceptionally clear and (2) remand would serve no useful purpose.

White v. Carlucci, 862 F.2d 1209, 1210-11 n.1 (5th Cir. 1989). In

this case, however, we find that disputes in the record warrant

remand. Under Manges, we must remand the case to the district

court for issuance of its own findings of fact and conclusions of

law.

Finally, an evidentiary hearing is necessary on remand only if

the parties are disputing material facts. Otherwise, a hearing on

the basis of briefing and affidavits is sufficient. Parker v.

Ryan, 959 F.2d 579, 583 (5th Cir. 1992); FSLIC v. Dixon, 835 F.2d

554, 558 (5th Cir. 1987). The record reveals several disputes of

material fact that the district court must necessarily resolve in

deciding whether to issue the injunction. An evidentiary hearing

thus is in order upon remand.

III. CONCLUSION

The district court did not consider whether the plaintiffs

made the requisite showing to warrant suspension of the Temporary

11 C&D. The district court also did not issue its own findings of

fact and conclusions of law. We vacate the suspension of the

Temporary C&D and remand to the district court for an evidentiary

hearing on the plaintiffs' application for a preliminary

injunction.

VACATED AND REMANDED.