Resolution Trust Corp. v. State of Cal.

851 F. Supp. 1453

RESOLUTION TRUST CORPORATION, in its corporate capacity and as Receiver for:

American Interstate Savings Association, F.A.; Arrowhead Pacific Federal Savings Bank; Atlantic Financial F.S.B.; Beach Federal Savings Bank; Brookside Federal Savings and Loan Association; Cabrillo Federal Savings Bank; Charter Savings Bank, F.S.B.; City Federal Savings & Loan Association, F.A.; Columbia Savings & Loan Association; Constitution Federal Savings Association; County Bank, F.S.B.; Executive Savings Bank, F.S.B.; Far West Savings and Loan Association, F.A.; Financial Federal Savings & Loan Association; First California Savings, F.S.A.; First Federal Savings & Loan Association; First Network Federal Savings Bank; Founders Federal Savings & Loan Association; Gateway Federal Savings Bank; Gibraltar Savings, F.A.; Gold River Savings Bank; the Guardian Federal Savings & Loan Association; Heartland Savings and Loan Association; Huntington Federal Savings and Loan Association; Imperial Federal Savings Association; Independence Savings and Loan Association; Investment Federal Savings & Loan Association; Liberty Federal Savings Bank; Malibu Savings Bank, F.S.B.; Lincoln Savings & Loan Association, F.A.; Mercury Federal Savings & Loan Association; Midwest Savings Association, F.A.; Pacific Coast Federal Savings Association of America; Pacific Savings Bank; Peninsula Federal Savings & Loan Association; Perpetual Savings Association, a Federal Savings and Loan Association; Progressive Savings Bank, F.S.B.; Rancho Bernardo Federal Savings Bank; Royal Oak Savings and Loan Association; Santa Barbara Federal Savings and Loan Association; Santa Paula Savings and Loan Association; Saratoga Federal Savings and Loan Association; Security Federal

Savings Association; Sierra Savings & Loan Association, F.A.; Southwest Federal Savings Association; Time Federal Savings and Loan Association; Unified Savings, a Federal Savings and Loan Association; Unity Savings and Loan Association, F.A.; Valley Federal Savings and Loan Association; Washington Savings and Loan Association; Westco Savings Bank, F.S.B.; Western Empire Federal Savings and Loan Association; Westport Federal Savings Bank; Westwood Savings and Loan Association; and Wilshire Federal Savings & Loan Association, Plaintiff, v. STATE OF CALIFORNIA; Gray Davis as Controller of the State of California; Daniel E. Lungren as Attorney General of the State of California; and Pacific Heritage Bank, Defendants.

RESOLUTION TRUST CORPORATION, in its corporate capacity and as Receiver, etc., et al., Plaintiff, v. STATE OF CALIFORNIA, et al., Defendants.

No. CV 92-6230 RG.

United States District Court, C.D. California.

May 4, 1994.

Susan J. Triplett, Jonathan M. Gordon, William E. Berner, Jr., McClintock, Weston, Benshoof, Rochefort, Rubalcava & MacCuish, and Pamela R. Piland, Los Angeles, CA, for Resolution Trust Corp. (Mark P. Hileman, Asst. Gen. Counsel and Kevyn D. Orr, Senior Counsel, Resolution Trust Corp., Washington, DC, of counsel).

Daniel E. Lungren, Atty. Gen. State of Cal. and Yeoryios C. Apallas, Deputy Atty. Gen., San Francisco, CA, for defendant.

MEMORANDUM AND ORDER RE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

GADBOIS, District Judge:

The plaintiff Resolution Trust Corporation ("RTC") in its Corporate Capacity and as Receiver for 52 financial institutions placed into receivership between August 1989 and October 1992, moves this Court for summary judgment on its claims for declaratory and injunctive relief against defendants the State of California (the "State" or "California") and Gray Davis as Controller of California.

The RTC advances three grounds in support of its motion:

1. The State's attempt to take custody of unclaimed federal deposit insurance funds pursuant to California's Unclaimed Property Law, Cal.Code Civ.Proc. §§ 1500, et seq. ("UPL"), is barred by the Supremacy Clause, U.S. Const. art. VI, cl. 2, because regulation of federal property is involved;

2. The State's UPL is preempted under the Supremacy Clause, U.S. Const. art VI, cl. 2, by the provisions of 12 U.S.C. § 1822(e) (as in effect prior to June 28, 1993); and

3. The State is not a "depositor of record" or other person or entity entitled to make a claim for deposit insurance under the language of section 1822(e) (as in effect prior to June 28, 1993) and the regulations promulgated thereunder.

BACKGROUND

Congress created the RTC as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, ("FIRREA"), 12 U.S.C. § 1441a(b)(1), et seq., and directed it to "manage and resolve all cases involving depository institutions." 12 U.S.C. § 1441a(b)(3)(A).

In its capacity as receiver of a failed financial institution, the RTC chooses one of several methods of paying insured depositors depending on which method will be least costly to taxpayers. In each case, insurance benefits are made available to depositors of the failed institution either through direct payment by the RTC or by transferring the insured amount to another financial institution, commonly known as an acquiring institution.¹ In most instances, depositors claim insurance benefits either by cashing their checks or opening an account with the acquiring institution.

12 U.S.C. § 1822(e)

Congress enacted 12 U.S.C. § 1822(e) to govern the disposition of deposits which remain unclaimed after an institution has gone into receivership. Section 1822(e) provides, in relevant part:

If, after the Corporation² shall have given at least three months' notice to the depositor by mailing a copy thereof to his last-known address appearing on the records of the depository institution in default, any depositor in the depository institution in default shall fail to claim his insured deposit from the Corporation within eighteen months after the appointment of the receiver for the depository institution, or shall fail within such period to claim or arrange to continue the transferred deposit within the new bank or with the other insured depository institution which assumes liability therefor, all rights of the depositor against the Corporation with respect to the insured deposit ... shall be barred ... The amount of any transferred deposits not claimed within such eighteen months' period, shall be refunded to the Corporation.

Former text of 12 U.S.C. § 1822(e) (emphasis added).³ In enacting this statute, Congress chose to place a specific notice period and time limitation on claims for insurance benefits, with any unclaimed funds to be refunded ultimately to the RTC by the transferee institutions.

California's Claim

The State Controller of California, Gray Davis ("Controller"), contends that certain unclaimed deposit insurance benefits should be turned over to the State as abandoned property under the State's Unclaimed Property Law ("UPL"), Cal.Code Civ.Proc. §§ 1500, et seq.⁴ The Controller also contends that under California law, he is entitled to audit the books and records of failed institutions in order to determine the amounts of unclaimed deposits to be turned over to the State.

Deposit accounts are deemed to be abandoned property, escheatable to the State, after the account has been dormant (i.e., inactive) for a period of three years. Cal. Code Civ.Proc. § 1513(a). Following this statutory period of inactivity, and after reasonable notice is given to the deposit holder, Cal.Code Civ.Proc. § 1513.5, financial institutions are required to turn over abandoned property to the State, Cal.Code Civ.Proc. § 1532, where the monies are ultimately deposited in the State's General Fund. Cal. Code Civ.Proc. § 1564(c).⁵ The State has full use of these funds, but must return the money to the rightful owners or their heirs upon demand. Cal.Code Civ.Proc. § 1540. There is no time limit within which the rightful owners may claim their funds from the State.

DISCUSSION

Defendants do not dispute the statement of uncontroverted facts submitted by plaintiff in support of its motion for summary judgment. Therefore, only legal issues remain in this case.

A. The State Controller's Claim Violates the Supremacy Clause Because it Constitutes Regulation of Federal Property.

Plaintiff first argues that the Controller's claim to the deposit insurance funds at issue is an impermissible attempt to regulate and interfere with exclusive federal activities and property in violation of the Supremacy Clause, U.S. Const. art. VI, cl. 2.

States may not directly regulate the federal government's activities or property. Hancock v. Train, 426 U.S. 167, 178-80, 96 S.Ct. 2006, 2012-13, 48 L.Ed.2d 555 (1976); State of Arizona v. Bowsher, 935 F.2d 332, 334 (D.C.Cir.), cert. denied, ___ U.S. ___, 112 S.Ct. 584, 116 L.Ed.2d 609 (1991). The Constitution itself declares that "Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the ... Property belonging to the United States." U.S. Const. art. IV, § 3, cl. 2.

The federal government has a vested property interest in money set aside to meet demands for specific payments, such as federal deposit insurance. See Buchanan v. Alexander, 45 U.S. (4 How.) 20, 20-21, 11 L.Ed. 857 (1846) (the Supreme Court prohibited creditors from garnishing money held by purser of the frigate Constitution to pay seamen's wages, stating, "so long as money remains in the hands of a disbursing officer, it is as much the money of the United States, as if it had not been drawn from the treasury"); State of Arizona v. Bowsher, 935 F.2d at 334 ("when the United States sets aside money for the payment of specific debts, it does not thereby lose its property interest in that money"). Cf. United States v. 5,644,540.00 in U.S. Currency, 799 F.2d 1357, 1365 (9th Cir.1986) (California Controller has no claim under the California Unclaimed Property Law to moneys seized by federal government during criminal arrest because all right, title, and interest in the property vested in the government at the time of...