Under the Plan, Carver was to issue its stock through both a subscription and a public offering. (Pollack Aff. Ex. 4 at 1, 84.) The subscription offering period was scheduled to end on September 22, 1994. (Id. at 5.) On or before the expiration of the subscription offering period, plaintiff ordered 15,000 shares of Carver stock at a total cost of $ 150,000.00. (Complaint at PP 3, 6; Pollack Aff. Ex. 9; Defs. Mem. at 6).
On October 4, 1994, CRG submitted to the OTS an updated appraisal that increased the estimated pro forma market value of Carver by 15% to $ 20,125,000.00, resulting in a revised valuation range of $ 17,106,250.00 to $ 23,143,750.00. (Pollack Aff. Ex. 12.) That same day, the OTS approved this final appraisal and specifically authorized Carver to sell up to $ 23,143,750.00 worth of stock. (Pollack Aff. Ex. 13.) Armed with this approval, Carver issued the maximum permissible number of shares -- 2,314,375 -- at a price of $ 10.00 per share. (Complaint at P 57; Defs. Mem. at 7.) As of March 14, 1995, Carver stock was trading at $ 6.625 per share. (Complaint at P 27.)
The complaint in the instant action was filed on April 5, 1995, alleging that defendants made material misrepresentations or omissions in the Offering Circular. First, while the Circular represents that the underlying appraisal was prepared by an independent appraiser, the complaint alleges that the defendants fraudulently failed to disclose that CRG's affiliate, Capital Resources, Inc., had a financial interest in the outcome of the conversion. Second, the Offering Circular represented that the initial appraisal was credible and reliable when, it is alleged, the appraisal was factually false and misleading. Third, although the Circular stated that the number of shares to be issued would not exceed 2,012,500 unless recent market and economic conditions warranted such an increase based on an updated appraisal, the number of shares issued was increased beyond this level despite allegedly worsening market and economic conditions. Based on these alleged misrepresentations and omissions, plaintiff contends that defendants violated Sections 12(2) and 15 of the Securities Act of 1933, 15 U.S.C. § § 77l(2), 77o (1994); Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a) (1994); Rule 10b-5 promulgated by the Securities and Exchange Commission ("SEC"), 17 C.F.R. § 240.10b-5 (1995); and the state common law doctrines prohibiting breach of fiduciary duty and breach of contract.
By Motion dated July 17, 1995, Carver and the Individual Defendants filed a motion to dismiss the Complaint for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Defendants CRG and Capital Resources filed a similar motion adopting the position of Carver and the Individual Defendants, but adding more detailed analysis of the OTS role in reviewing the independence of the appraiser in a conversion.
I. JURISDICTION OVER PLAINTIFF'S FEDERAL SECURITIES FRAUD CLAIMS.
A. Overview of Specialized Review Provisions of Agency Action.
"It can hardly be doubted that Congress, acting within its constitutional powers, may prescribe the procedures and conditions under which, and the court in which, judicial review of administrative orders may be had." City of Tacoma v. Taxpayers of Tacoma, 357 U.S. 320, 336, 2 L. Ed. 2d 1345, 78 S. Ct. 1209 (1958). In many instances, Congress has vested the court of appeals with primary jurisdiction to review actions of federal agencies.
According to statute, a decision of the director of the OTS, like the approval of the Plan challenged herein, must be brought in the court of appeals in the first instance.
Such specialized procedures are utilized by Congress in an attempt to streamline administrative and judicial efforts by both preventing parallel proceedings before an administrative agency and a district court, especially where the agency may engage in extensive fact-finding and review of the law in the first instance, Whitney National Bank v. Bank of New Orleans, 379 U.S. 411, 422, 13 L. Ed. 2d 386, 85 S. Ct. 551 (1965), and by lessening the potential for conflicting district court opinions on matters of law arising out of challenges to agency action. Fort Worth National Corporation v. Federal Home Loan Bank Board, 469 F.2d 47, 52 (5th Cir. 1972). Such mechanisms curb piecemeal judicial review, permitting the agency to bring its expertise to bear on a problem, Whitney National Bank, 379 U.S. at 422, and allowing the court of appeals to develop its own familiarity with a given area of law in which such specialized procedures apply. Telecommunications Research and Action Center v. Federal Communications Commission, 242 U.S. App. D.C. 222, 750 F.2d 70, 78 (D.C.Cir. 1984).
The original jurisdiction of the court of appeals over a particular claim depends upon the substance of that claim and the extent to which such claim falls within the scope of the subject matter of the legislatively crafted review procedure. See, e.g., McNary v. Haitian Refugee Center, 498 U.S. 479, 491-493, 112 L. Ed. 2d 1005, 111 S. Ct. 888 (1991) (holding challenge to manner in which INS carried out a particular program could be brought in district court even though individual decisions under same had to be maintained in the courts of appeals); cf. Florida Power & Light Company v. Lorion, 470 U.S. 729, 737-740, 84 L. Ed. 2d 643, 105 S. Ct. 1598 (1985) (holding Congress intended scope of statute providing for primary jurisdiction of court of appeals to depend upon subject matter of claim and not underlying procedures utilized by the agency in a given decision). Where a statute so provides, these specialized procedures vesting jurisdiction over challenges to agency action in the courts of appeals are considered the exclusive means of judicial review. Whitney National Bank, 379 U.S. at 422 (1965); See, e.g., Michael v. INS, 48 F.3d 657, 661 (2d Cir. 1995) (describing "direct and exclusive" review procedures to the court of appeals for aliens challenging final deportation orders); cf. 5 U.S.C. § 703 (holding venue of and jurisdiction over action seeking review of agency action will first depend upon relevant statute providing for review, if any).
B. Review of Decisions of the Director of the OTS.
Consistent with this body of jurisprudence, courts reviewing actions such as the one at issue here routinely find that the mechanisms for appellate review provide the exclusive means for challenging agency decisions.
Craft v. Florida Fed. Sav. & Loan Ass'n, 786 F.2d 1546, 1552-1553 (11th Cir. 1986); Harr v. Prudential Fed. Sav. & Loan Ass'n, 557 F.2d 751, 752 (10th Cir. 1977), cert. denied, 434 U.S. 1033, 54 L. Ed. 2d 780, 98 S. Ct. 766 (1978).
Relying upon various OTS regulations providing that the agency does not pass upon the adequacy of the proxy or subscription offering materials used in connection with an agency-approved transaction,
courts have held that allegations of fraud in such materials can advance in the district court because they raise issues beyond agency authority and thus outside the scope of the primary jurisdiction of the court of appeals. Reschini v. First Fed. Sav. & Loan Ass'n, 46 F.3d 246, 251-53 (3d Cir. 1995); Ordower v. Office of Thrift Supervision, 999 F.2d 1183, 1188 (7th Cir. 1993); Rembold v. Pacific First Fed. Sav. Bank, 798 F.2d 1307, 1309 (9th Cir. 1986), cert. denied, 482 U.S. 905, 96 L. Ed. 2d 373, 107 S. Ct. 2480 (1987). Cf. Thrift Depositors of America v. Office of Thrift Supervision, 862 F. Supp. 586 (D.D.C.1994)(holding challenge to OTS adoption of internal agency rule does not involve agency approval of a specific transaction and may be maintained in the district court in the first instance).
Because of the importance of protecting the integrity of the statutorily vested primary jurisdiction of the courts of appeals and its purposes, however, courts in these circumstances must review securities fraud allegations carefully to insure that litigants do not attempt to circumvent the statutory jurisdiction of the court of appeals by mischaracterizing the substance of the claims at issue. See, e.g., Ordower v. Office of Thrift Supervision, 999 F.2d at 1188 (cautioning district court to insure, on remand, that securities fraud claims in complaint did not amount to "collateral attack" on the decision of the OTS); Harr v. Prudential Fed. Sav. & Loan Ass'n, 557 F.2d at 753 (holding court of appeals only forum for complaint attacking the substance of the conversion plan approved by the agency and that plaintiff's allegation of securities fraud was "at best a secondary or derivative position."); cf. Sutton v. U.S. Dep't of Transportation, 38 F.3d 621, 625-26 (2d Cir. 1994) (holding party's characterization of complaint irrelevant to jurisdictional issue and the district court may not entertain an action if claims found therein are based in substantial part on matters covered by statute providing for court of appeals review of agency action in the first instance).
C. Plaintiff's Claim.
In the instant case, plaintiff argues that its allegations concerning fraud committed by defendants throughout the course of the stock conversion fall outside the scope of 12 U.S.C. § 1467a(j) and thus the instant action may be maintained in the district court. The court shall discuss each of plaintiff's charges of fraud in turn, beginning with the Offering Circular's purported misstatements concerning the first appraisal.
1. The Offering Circular's misrepresentations concerning the initial appraisal.