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FINANCIAL INST. RET. F. v. OTS

July 18, 1991

FINANCIAL INSTITUTIONS RETIREMENT FUND, PLAINTIFF, AND THE FEDERAL HOME LOAN BANK OF BOSTON, THE FEDERAL HOME LOAN BANK OF NEW YORK, THE FEDERAL HOME LOAN BANK OF PITTSBURGH, THE FEDERAL HOME LOAN BANK OF ATLANTA, THE FEDERAL HOME LOAN BANK OF CINCINNATI, THE FEDERAL HOME LOAN BANK OF INDIANAPOLIS, THE FEDERAL HOME LOAN BANK OF CHICAGO, THE FEDERAL HOME LOAN BANK OF DES MOINES, THE FEDERAL HOME LOAN BANK OF DALLAS, THE FEDERAL HOME LOAN BANK OF TOPEKA, THE FEDERAL HOME LOAN BANK OF SAN FRANCISCO, AND THE FEDERAL HOME LOAN BANK OF SEATTLE, INTERVENORS/PLAINTIFFS,
v.
OFFICE OF THRIFT SUPERVISION AND T. TIMOTHY RYAN, DIRECTOR, OFFICE OF THRIFT SUPERVISION, DEFENDANTS. THOMAS A. BARNES, BARRY S. BURKE, RONALD B. CARREKER, CHARLES A. DEARDORFF, ALLEN DERMODY, BILL DURBIN, JANE MARIE JOHNSON, RONALD R. LAKE, PENNY D. MARSHALL, OFFICE OF THRIFT SUPERVISION, AND T. TIMOTHY RYAN, DIRECTOR, OFFICE OF THRIFT SUPERVISION, COUNTERCLAIM PLAINTIFFS, V. JAMES R. FAULSTICH, RONALD R. MORPHEW, JOHN W. BAGWILL, JR., GEORGE M. BARCLAY, JOHN A. BECKER, J.C. BENAGE, LEO B. BLABER, JR., JAMES M. CIRONA, RAMIRO LUIS COLON, JR., THURMAN C. CONNELL, BRIAN D. DITTENHAFER, LYLE R. GRIMES, MICHAEL A. JESSEE, JERRY H. LASSITER, FRANK A. LOWMAN, ELLEN ANN ROBERTS, JAMES D. ROY, ROBERT E. SHOWFETY, ROBERT F. STOICO, CHARLES L. THIEMANN, NORMAN L. TIREY, ROY E. WEBBER, AND JOHN B. ZANETTI, INDIVIDUALLY AND AS DIRECTORS OF THE FINANCIAL INSTITUTIONS RETIREMENT FUND, COUNTERCLAIM DEFENDANTS.



The opinion of the court was delivered by: Goettel, District Judge:

  OPINION

This case presents a very unique situation involving the rights to surplus cash accumulated by a multi-employer pension fund established by various financial institutions, including savings and loans, savings banks, and commercial banks. The novelty of this case is not limited to the legal issues before us. Indeed, in light of today's economy, we had thought that terms surplus cash and financial institutions were mutually exclusive. Perhaps these same institutions that are in such dire financial straits (not to mention their legal quandaries) would be better served by permitting the pension fund's directors to handle their corporate finance as well.

I. FACTS

Plaintiff Financial Institutions Retirement Fund (the "Fund") is a pension fund established in 1943 to serve various financial institutions, such as savings and loans, savings banks, and commercial banks. The Fund provides retirement benefits to employees of the covered financial institutions. The Fund has some 437 participating employers and there are approximately 36,000 employees entitled to such benefits, 10,000 of whom are currently retired.

Among the participating employers are the twelve Federal Home Loan Banks (the "Banks") established in 1932 pursuant to the Federal Home Loan Bank Act. Until 1989, the Banks were essentially self-regulated, although in 1986 the Federal Home Loan Bank Board (the "FHLBB") established the Office of Regulatory Activities (the "ORA") to assist in its examination of the operations of the individual thrift institutions. In 1989, however, both the FHLBB and the ORA were abolished by Congress through the passage of the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"). Pub.L. No. 101-73, 103 Stat. 183-553.

FIRREA's principal goal was to combat the crisis in the thrift industry. See United States v. Gaubert, ___ U.S. ___, 111 S.Ct. 1267, 1271 n. 1, 113 L.Ed.2d 335 (1991). One major development in this regard was the creation of a new regulatory body, the Office of Thrift Supervision ("OTS"). While the Banks were essentially self-regulated prior to this time, FIRREA transferred many of these responsibilities to OTS. As part of this transfer of responsibilities, FIRREA also required that some 2,500 of 5,500 Bank employees be transferred to the employ of OTS. The transferred employees, by and large, were those employees who had previously engaged in regulatory activities for the Banks.

With respect to the Fund, the parties agree that FIRREA required the Banks to continue paying both the salaries and benefits of the transferred employees up until March 31, 1990. Pub.L. No. 101-73, §§ 722-23, 103 Stat. 426-28. After that date, OTS clearly was responsible for the employees' salaries. As to the benefits, including pension benefits, if OTS chose to participate in the Fund it became responsible for making contributions on the transferred employees' behalf. While OTS did choose to join the Fund, it failed to make any of the required contributions. This action was brought in response to OTS's inaction.

The Fund is financed by quarterly employer contributions. These employer contributions are commingled and the entirety of the Fund's assets is available to satisfy any impending obligations. In July 1987, the Fund reached what is known as "full funding," a position recognized by the Internal Revenue Service. This means that the assets of the Fund exceeded the actuarially determined employer liabilities for the Fund's current beneficiaries. This surplus was due to the Fund's extremely successful investments. In an effort to permit the various employers to utilize this surplus, the Fund first calculated the surplus to which each employer was entitled based on contributions and potential liabilities. The Fund then decided, with Congressional approval, to permit employers with surpluses to offset their future contributions against these surpluses since the employers could not remain in the plan and utilize the surplus for any purpose other than employee benefits.*fn1 The surpluses are denominated Future Employer Contribution Offsets ("FECO"). Once an employer's FECO balances are reduced to zero, the employer is again required to make quarterly contributions.

The Banks were among the employers with FECO balances. After the Banks stopped contributing (actually, they ceased offsetting their surplus) for the transferred employees pursuant to the date established by FIRREA, the Fund billed OTS for its quarterly contributions on behalf of the transferred employees. As noted, OTS refused to pay, claiming that the Banks' FECO balances should be apportioned between the transferred and non-transferred employees. Thus, OTS claims entitlement to the Banks' FECO balances to offset its contributions for the transferred employees. Thereafter, a Special Committee of the Fund's Board of Directors met to discuss the issue,*fn2 concluding that OTS was wrong and that the FECO balances belonged exclusively to the Banks. OTS persisted in its position, however, and has not made any contributions.

In October 1990, the Fund instituted this action seeking a declaration that neither FIRREA nor ERISA (the Employees' Retirement Income Security Act of 1974) requires the transfer of the FECO balances to OTS. Subsequently, the Banks themselves moved to intervene as plaintiffs and the motion was granted.*fn3 All plaintiffs then moved for summary judgment, which is one of the motions before us. In their responsive papers to the summary judgment motions, defendants claimed, inter alia, that the motions were premature because little, if any, discovery had taken place. Specifically, defendants asserted that discovery was needed on the question of whether the Fund's directors breached their fiduciary duties in allocating the FECO balances to the Banks. In reply, plaintiffs suggested that OTS lacked standing to question the actions of the directors. Moreover, plaintiffs argued that the directors' decision was based on advice of counsel and this advice, therefore, was privileged.*fn4

Before any of these motions were resolved, counterclaims were filed by the named defendants. Defendants' counsel also filed what purport to be counterclaims on behalf of nine employees of OTS who had formerly been the Banks' employees. These counterclaims are asserted against the named plaintiffs, as well as against the twenty-five members of the Fund's Board of Directors, who had not previously been named as parties to the dispute. The former employees' attempt to intervene responds to plaintiffs' claims that OTS, as a participant employer, lacks standing to challenge the directors' fiduciary actions. After plaintiffs challenged the efficacy of simply joining the employees without leave of court, a formal motion to intervene was filed. At the same time, plaintiffs filed motions to dismiss the counterclaims.

While this is all extremely confusing (even to this court), the bottom line is that we have before us a motion to intervene by OTS employees who were formerly Bank employees, plaintiffs' motion to dismiss all counterclaims, and plaintiffs' motion for summary judgment.

II. DISCUSSION

A. Motion to ...


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