Bank Not Allowed to Sue Regulators
Regulators must have flexibility to work out solutions for troubled banks without being concerned that they will be sued for their actions, a federal judge ruled Thursday.
U.S. District Judge Stanley Sporkin said he doubts that bank regulators would make the tough decisions necessary if they were going to be sued for damages every time they did.
Even if they make mistakes, Sporkin wrote, “bank regulatory officials must have certain leeway in discharging their duties in order for the regulatory system to function effectively.
“Mistakes incurred in carrying out governmental responsibilities must be tolerated, or otherwise the regulatory system will not be able to function as it must,” he said.
Suit Dismissed
Sporkin dismissed a $30-million lawsuit brought by Biscayne Federal Savings & Loan Assn., Miami, and its principal shareholder, Los Angeles-based Kaufman & Broad, against six officials of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corp.
“The board and staff members in this case were acting in their governmental capacities. They are entitled to be relieved of the large monetary claims asserted against them that have been hanging over their heads for over three years,” Sporkin wrote.
The officials, and their positions at the time, included all three members of the board, Chairman Richard T. Pratt, Jamie Jackson and Edwin J. Gray; Thomas P. Vartanian, the board’s general counsel; D. James Croft, director of the board’s office of examinations and supervision; and H. Brent Beesley, director of the FSLIC office.
On April 6, 1983, the board appointed an FSLIC receiver for the bank, which showed a net worth of minus $30 million. Shortly after that, the FSLIC took possession of the property and assets of the bank and converted them to a new federal mutual association.
Suit Within Hours
The bank sued in federal court in Miami within hours after the board appointed the receiver, seeking to have him removed and charging that the decision to name him was arbitrary and capricious and an abuse of discretion.
The U.S. District Court in Miami and the Court of Appeals for 11th Circuit disposed of five of Biscayne’s eight claims, leaving only the damages complaint against the six federal officials.
“Bank regulatory agencies must have the flexibility to negotiate appropriate workout solutions with banks facing severe economic problems,” Sporkin wrote. “It cannot be expected that a senior staff member of a bank regulatory agency would engage in hard-hitting negotiations if to do so would subject his modest personal estate to unlimited damage awards.”
