Columbian Financial Corporation et al v. Stork et al
Filing
30
MEMORANDUM AND ORDER granting 14 Motion to Dismiss. Signed by U.S. District Senior Judge Sam A. Crow on 11/18/14. (msb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
COLUMBIAN FINANCIAL
CORPORATION,
THE COLUMBIAN BANK
& TRUST CO.,
Plaintiffs,
vs.
Case No. 14-2168-SAC
JUDI M. STORK, DERYL K. SCHUSTER,
OFFICE OF THE STATE BANK COMMISSIONER
OF KANSAS, EDWIN G. SPLICHAL, and
J. THOMAS THULL,
Defendants.
MEMORANDUM AND ORDER
This 42 USC § 1983 case alleging due process violations comes before
the Court on Defendants’ motion to dismiss.
I. Motion to Dismiss Standard
Defendants move to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and
12(b)(6).
Defendants contend the complaint is jurisdictionally deficient. Rule
12(b)(1) of the Federal Rules of Civil Procedure authorizes a court to dismiss
a claim for lack of subject matter jurisdiction. Federal courts are courts of
limited jurisdiction, so may exercise jurisdiction only when specifically
authorized to do so. Castaneda v. I.N.S., 23 F.3d 1576, 1580 (10th Cir.
1994). Upon a defendant's Rule 12(b)(1) motion to dismiss, the plaintiff
bears the burden of proving jurisdiction.
Defendants also allege factual insufficiency. Under Rule 12(b)(6), the
Court assesses whether the plaintiff's complaint alone is legally sufficient to
state a claim for which relief may be granted. Miller v. Glanz, 948 F.2d 1562,
1565 (10th Cir. 1991). The Supreme Court recently clarified the requirement
of facial plausibility:
To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to “state a claim for relief that is
plausible on its face.” Id. [Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)] at 570. A claim has
facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the Defendant is liable
for the misconduct alleged. Id. at 556 [127 S.Ct. 1955]. The
plausibility standard is not akin to a “probability requirement,” but it
asks for more than a sheer possibility that a Defendant has acted
unlawfully. Id. Where a complaint pleads facts that are “merely
consistent with” a Defendant's liability, it “stops short of the line
between possibility and plausibility of ‘entitlement to relief.’ ” Id. at
557 [127 S.Ct. 1955].
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868
(2009). “Threadbare recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice.” Id. “[C]ourts should look to
the specific allegations in the complaint to determine whether they plausibly
support a legal claim for relief.” Alvarado v. KOB–TV, L.L.C., 493 F.3d 1210,
1215 n. 2 (10th Cir. 2007).
2
II. Uncontested Facts
The facts are uncontested. Plaintiff Columbian Financial Corporation
(“CFC”) is a Kansas for-profit corporation and was the sole shareholder of
Columbian Bank and Trust Company. Plaintiff The Columbian Bank and Trust
Company (“Bank”) was a state-chartered bank with its primary business
location at 701 Kansas Avenue, Topeka, Kansas. It was organized under the
laws of Kansas, was based in Topeka, and operated through nine branch
offices in Kansas and Missouri.
Defendant Judi Stork is the Deputy Bank Commissioner of Kansas and
is sued in her official capacity as well as in her individual capacity. Ms. Stork
served as Acting Bank Commissioner from June 19, 2010, to January 6,
2011, and from November 2, 2013, to March 18, 2014. When not serving as
Acting Bank Commissioner, she served as Deputy Bank Commissioner at all
times relevant to this lawsuit. Defendant Deryl K. Schuster is the current
State Bank Commissioner of Kansas and is sued in his official capacity in
that position. He served as Acting Bank Commissioner from March 19, 2014
to April 6, 2014 then as Bank Commissioner from April 6, 2014 to the
present. Defendant Edwin G. Splichal served as Bank Commissioner from
January 7, 2011, to November 1, 2013, and is sued in his individual
capacity. Defendant J. Thomas Thull served as Bank Commissioner from
March 1, 2007, to June 18, 2010, and is sued in his individual capacity.
3
Defendant Kansas Office of the State Bank Commissioner (“OSBC”) is a selffunded regulatory agency.
As a state-chartered bank with federally-insured deposits, the Bank
was subject to supervision by both the OSBC and the Federal Deposit
Insurance Corporation (“FDIC”). In January of 2008, an FDIC examiner
conducted an on-site evaluation of the Bank. On April 30, 2008, the FDIC
issued its Report of Examination, which downgraded the Bank from its
previous ratings in all six of the relevant components.
On July 15, 2008, the Bank stipulated and consented to the issuance
of a cease and desist order with the OSBC and FDIC. Dk.15-2 pp. 3-31.
On August 22, 2008, Commissioner Thull, acting in his official capacity,
issued a Declaration of Insolvency and Tender of Receivership (the
“Declaration”) finding the Bank insolvent. The Declaration made no reference
to the cease and desist order, but stated that Commissioner Thull was
immediately taking charge of the Bank and all of its properties and assets on
behalf of the State of Kansas pursuant to K.S.A. § 9-1903, § 9-1905, and §
77-536.
The latter statute permits a state agency to use emergency
proceedings in a situation involving an immediate danger to the public
health, safety or welfare requiring immediate state agency action. K.S.A. §
77-536. K.S.A. § 9-1903 allows a Commissioner taking charge of a bank to
appoint a special deputy to manage the affairs of the bank “for such period
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of time as deemed reasonable and necessary by the commissioner before
returning charge of the bank . . . to the board of directors.” K.S.A. § 9-1905
requires a Commissioner taking charge of a bank to “ascertain its actual
condition as soon as possible by making a thorough investigation into its
affairs and condition,” and provides that “if the commissioner shall be
satisfied that such bank . . . cannot sufficiently recapitalize, resume business
or liquidate its indebtedness . . . the commissioner forthwith shall appoint a
receiver.” The Declaration stated that Mr. Thull was satisfied that the Bank
could not resume business and appointed the FDIC as the Bank’s receiver.
The FDIC sold a substantial portion of the Bank’s assets in a prearranged
sale the same day as the seizure.
The Declaration notified the Bank that it could petition for judicial
review of the OSBC’s actions pursuant to the Kansas Judicial Review Act
(KJRA), K.S.A. § 77-601 et seq. The Bank and CFC timely filed a petition for
review in the District Court of Shawnee County, Kansas on September 22,
2008. In response, the OSBC argued the Bank was not entitled to review
because no remedy could be had against the OSBC or the Commissioner.
The district court apparently did not agree, as it reached the merits of
Plaintiffs’ due process claim, stating:
“It seems clear that bank seizures, given their exigency, have long
been excused from any notice or pre-hearing seizure requirement
(Fahey v. Mallonee, 332 U.S. 245, 91 L.Ed.2030 (1947)). However,
such is not necessarily the case post-seizure. Some substantive postdeprivation review is required in order to constitutionally ground the
5
decision. Mathews v. Eldridge, 424 U.S. 319, 47 L.Ed.2d 18 (1976). A
bank seizure is not excepted.”
Columbian Bank and Trust Co. v. Splichal, 329 P.3d 557, 2014 WL 3732013,
p. 9 (Kan. App. 2014) (quoting the district court decision). On March 29,
2010, the Shawnee County District Court remanded the matter to the
Commissioner to conduct post-deprivation proceedings under K.S.A. § 77–
536.
On remand, the OSBC initiated administrative proceedings to which
both the Bank and CFC were parties. Both parties stated uncontested facts
and filed motions for summary judgment. On April 18, 2012, thenCommissioner Splichal issued a decision in favor of the State Bank
Commissioner on the parties’ cross-motions for summary judgment.1 That
decision specifically stated that the Bank and CFC had the right to petition
for judicial review.
The Bank and CFC filed two such petitions. The OSBC responded by
filing motions to dismiss, arguing the Bank and CFC were not entitled to
judicial review because no remedy was available. The Shawnee County
District Court agreed so dismissed the petitions as moot on January 30,
2013.2
1
The parties do not fully inform this Court of the events that transpired between the date
the district court remanded the case and the date Commissioner Splichal decided the
summary judgment motions.
2
The KCOA states the district court dismissed the petitions as moot, and this Court accepts
that factual finding. The record before this Court, however, does not contain copies of the
district court’s decisions or copies of the parties’ briefs filed in the district court, or any
6
Both parties appealed that decision to the Kansas Court of Appeals
(KCOA), which affirmed after consolidating the judicial review actions. The
KCOA found that both CFC and the Bank had standing, that the FDIC as
receiver did not need to be a party, and that the issues were not moot. But
it affirmed the denial of relief because the Bank and CFC had not met their
burden of proving the invalidity of the Commissioner's action under the
KJRA. Columbian Bank and Trust Co. v. Splichal, 2014 WL 3732013, 1
(2014).
The KCOA noted that the judicial review action did not seek to recover
assets of an estate but sought a declaratory judgment on the Commissioner's authority to close a bank, seize its assets, and appoint a receiver.
The KCOA addressed the due process issue, finding that banks and owners of
a FSLIC-insured savings and loan association have a constitutional right to
be free from unlawful deprivations of their property, but that no predeprivation hearing was necessary. It held that CFC and the Bank had
received sufficient notice and opportunity to be heard post-deprivation by
the Commissioner’s review under the KAPA and the court’s review under the
KJRA. Id., 2014 WL 3732013, at 9.
The KCOA further found that the Commissioner did not need to
postpone its action to protect the public until after the bank was actually
unable to meet a customer’s demand for withdrawal of funds. Instead, the
documents from the administrative process before the OSBC. Thus the administrative
proceedings and the district court’s judicial review thereof are not included in the record.
7
statute permits the Commissioner to reasonably consider future demands
that will be made on a bank in order to prevent imminent harm to depositors
and to the public. The KCOA found substantial evidence in support of the
Commissioner’s conclusion that the Bank was insolvent. Id. In sum, the
Commissioner was authorized to declare the Bank insolvent under K.S.A. 9–
1902(2), to take charge of the Bank and all of its assets under K.S.A. 9–
1903, and to appoint a receiver under K.S.A. 9–1905. Id, at 11.
Plaintiffs filed a petition with the Kansas Supreme Court for review of
the KCOA’s decision, and it is pending.
Plaintiffs then filed this separate action, alleging procedural and
substantive due process violations based on the seizure itself, the lack of a
pre-deprivation hearing, and the lack of a timely and meaningful postdeprivation hearing. Plaintiffs seek damages, punitive damages, costs, fees,
rescission of the Declaration of Insolvency and Tender of Receivership, a
declaratory judgment that the Declaration of Insolvency and Tender of
Receivership is invalid, an injunction requiring the Defendants “to comply
with state and federal law,” and a constructive trust.
III. Younger Abstention
The parties raise multiple issues regarding Defendants’ immunity,
Plaintiffs’ ability to bring suit under § 1983, Defendants’ ability to be sued
under that statute, and the Court’s exercise of its Declaratory Judgment
8
discretion. But first, the Court examines its power to hear the case, given
the parallel state court proceedings.
Younger abstention requires federal courts to abstain from exercising
jurisdiction in certain circumstances.
Younger abstention dictates that federal courts not interfere with state
court proceedings by granting equitable relief—such as injunctions of
important state proceedings or declaratory judgments regarding
constitutional issues in those proceedings—when such relief could
adequately be sought before the state court.
Amanatullah v. Colorado Bd. of Med. Exam'rs, 187 F.3d 1160, 1163 (10th
Cir. 1999) (quoting Rienhardt v. Kelly, 164 F.3d 1296, 1302 (10th Cir.
1999)). Younger abstention requires federal courts to abstain from
exercising jurisdiction when (1) there is an ongoing state criminal, civil, or
administrative proceeding, (2) the state court provides an adequate forum to
hear the claims raised in the federal complaint, and (3) the state
proceedings “involve important state interests, matters which traditionally
look to state law for their resolution or implicate separately articulated state
policies.” Taylor v. Jaquez, 126 F.3d 1294, 1297 (10th Cir. 1997)). See
Middlesex Cnty. Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423,
432, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982).
Plaintiffs do not dispute that the last two requirements are met, so the
issue is only whether there is an ongoing state proceeding. This inquiry
involves two subparts: whether there is a pending state proceeding and
whether it is the type of state proceeding that is due the deference accorded
9
by Younger abstention. Brown ex rel. Brown v. Day, 555 F.3d 882,
888 (10th Cir. 2009). Plaintiffs admit that there is a pending state
proceeding, but contend that it is not due Younger deference because it is
remedial rather than coercive in nature.
Brown distinguished between remedial proceedings, to which Younger
does not apply, and coercive proceedings, to which it does apply. That
distinction was made in “the unique context of applying Younger to
administrative proceedings,” Morkel v. Davis, 513 Fed.Appx. 724, 728, 2013
WL 1010556, 3 (10th Cir. 2013), so is appropriate here. Brown identified the
following factors relevant to the determination of whether an administrative
proceeding is coercive or remedial in nature: (1) whether the state
proceeding is an option available to the federal plaintiff on her own initiative
to redress a wrong inflicted by the state or whether the participation of the
federal plaintiff in the state administrative proceeding is mandatory; (2)
whether the state proceeding is itself the wrong which the federal plaintiff
seeks to correct via injunctive relief under section 1983; and (3) whether the
federal plaintiff has committed an alleged bad act. Brown, 555 F.3d at 890–
91.
Each of these factors points toward the conclusion that the
administrative proceeding at issue here was coercive, and thus the type of
state proceeding that is due the deference accorded by Younger abstention.
Plaintiffs allegedly committed a “bad act” in reaching the point of risk or
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insolvency that led the OSBC to take emergency action to declare insolvency
and appoint a receiver. This triggered the state-initiated administrative
enforcement proceedings against Plaintiffs, who had to participate or forfeit
their claims. And the state proceeding is itself the wrong which the federal
plaintiff seeks to correct via injunctive relief, as the alleged deficiencies in
the administrative proceedings form the basis for Plaintiff’s due process
claims – the only claims made in this case.
Where, as here, Plaintiffs claim that constitutional rights would be
violated by virtue of the operation of the state proceedings, comity and
federalism concerns are at their highest. Brown, 555 F.3d at 893.
State courts are generally equally capable of enforcing federal
constitutional rights as federal courts. See Middlesex Cnty. Ethics
Comm., 457 U.S. at 431, 102 S.Ct. 2515. And when constitutional
challenges impact state proceedings, as they do here, “proper respect
for the ability of state courts to resolve federal questions presented in
state-court litigation mandates that the federal court stay its hand.”
Pennzoil Co., 481 U.S. at 14, 107 S.Ct. 1519.
Morkel, 513 Fed.Appx. at 728. The Kansas state courts addressed and
resolved the same due process questions presented in this case. Because
Plaintiffs are attempting to use the federal courts to shield themselves from
state court enforcement efforts and to remedy alleged constitutional wrongs
in the ongoing state proceedings, Younger abstention is appropriate.
Plaintiff’s claims for injunctive relief, declaratory relief, a constructive
trust, and rescission of the Declaration of Insolvency and Tender of
Receivership shall thus be dismissed without prejudice for lack of subject
11
matter jurisdiction. See Morkel, 513 Fed.Appx. at 729. See also Ecco Plains,
LLC v. United States, 728 F.3d 1190 (10th Cir. 2013) (constructive trust is
an equitable remedy); Rosenfield v. HSBC Bank, USA, 681 F.3d 1172
(10th Cir. 2012) (rescission is an equitable remedy).
IV. Damages Claims, Official Capacity
In addition to equitable relief, Plaintiffs seek monetary damages
against all Defendants, which are not included in Younger abstention.
Accordingly, the Court addresses the parties’ arguments relating to this
relief.
A. Officials not Proper Defendants
Defendants Stork and Schuster, who have been sued in their official
capacities, contend that they are not suable “persons” under § 1983.3
Neither a State nor its officials sued in their official capacities for damages is
a “person” under § 1983. Will v. Michigan Dept. of State Police, 491 U.S. 58,
71, 109 S.Ct. 2304, 2312 (1989).
Plaintiffs contend that they seek only prospective, injunctive relief
against Defendants Stork and Shuster in their official capacities, Dk. 21 p.
36. The Court thus binds Plaintiffs to this position, which is not clear from
the face of the complaint. A state official in his or her official capacity, when
3
These same Defendants also raise Eleventh Amendment defenses, but the Court must first
consider the “no person” defense. See Vermont Agency of Natural Resources v. United
States, 529 U.S. 765, 771 (2000) (False Claims Act case holding that when the defendant
asserts both “person” and Eleventh Amendment defenses, the court should first determine
the “person” issue); Power v. Summers, 226 F.3d 815, 818 (7th Cir. 2000) (applying
Vermont Agency to § 1983 actions).
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sued for injunctive relief, is a “person” under § 1983 because “officialcapacity actions for prospective relief are not treated as actions against the
State.” Kentucky v. Graham, 473 U.S., at 167, n. 14, 105 S.Ct., at 3106, n.
14; Ex parte Young, 209 U.S. 123, 159–160, 28 S.Ct. 441, 453–454, 52
L.Ed. 714 (1908). But injunctive relief is barred by Younger abstention, as
addressed above.
B. Bank not a Proper Plaintiff
The parties agree that the Bank is an unincorporated association. See
Dk. 21, p. 35. Defendants claim that as an unincorporated association, the
Bank is not a “person” capable of bringing suit under 42 U.S.C. § 1983. The
Court agrees.
The Tenth Circuit has held that an unincorporated association is not a
“person” capable of bringing suit under § 1983. Lippoldt v. Cole, 468 F.3d
1204, 1211 (10th Cir. 2006). “Lippoldt does not distinguish between types of
unincorporated associations and the plain holding of the case is that all
unincorporated associations lack the capacity to bring suit under § 1983.”
Owasso Kids for Christ v. Owasso Public Schools, 2012 WL 602186, 5-6
(N.D.Okla. 2012).
The Bank contends that Lippoldt “runs contrary to the weight of
precedent,” from other jurisdictions. See Dk. 21, p. 35. But Lippoldt is
binding Tenth Circuit precedent squarely on point, so this Court is bound to
follow it. United States v. Spedalieri, 910 F.2d 707, 709 n. 2. (10th Cir.
13
1990) (“A district court must follow the precedent of this circuit, regardless
of its views concerning the advantages of the precedent of our sister
circuits.”). Because the Bank is an unincorporated association incapable of
bringing suit under § 1983, it shall be dismissed as a party plaintiff.
C. Eleventh Amendment
Although the non-person defense above makes it unnecessary for the
court to reach the Eleventh Amendment issue, it addresses it alternatively,
in an abundance of caution, and finds that Plaintiff’s damage claims against
Defendants Stork and Schuster are barred by the Eleventh Amendment.
1. Stork and Shuster
The Eleventh Amendment generally bars suits for damages against the
State.
Section 1983 provides a federal forum to remedy many deprivations of
civil liberties, but it does not provide a federal forum for litigants who
seek a remedy against a State for alleged deprivations of civil liberties.
The Eleventh Amendment bars such suits unless the State has waived
its immunity, Welch v. Texas Dept. of Highways and Public
Transportation, 483 U.S. 468, 472–473, 107 S.Ct. 2941, 2945–2946,
97 L.Ed.2d 389 (1987) (plurality opinion), or unless Congress has
exercised its undoubted power under § 5 of the Fourteenth
Amendment to override that immunity.
Will, 491 U.S. at 66. No waiver or override is alleged here, thus under the
general rule Plaintiff’s claims against the State and its officials are barred.
In Ex parte Young, the Court created an exception, holding that the
Eleventh Amendment generally will not operate to bar suits so long as they
(i) seek relief properly characterized as prospective rather than the
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functional equivalent of impermissible retrospective relief for alleged
violations of federal law, and (ii) are aimed against state officers acting in
their official capacities, rather than against the State itself. Ex parte Young,
209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). Thus the Eleventh
Amendment does not bar official capacity claims for forward-looking
declaratory or injunctive relief. Hill v. Kemp, 478 F.3d 1236, 1255-56 (10th
Cir. 2007).
In examining the nature of the relief sought by Plaintiffs, the Court
looks to the substance, not just to the caption, of the matter. Hill, 478 F.3d
at 1259. The complaint seeks an injunction requiring the Defendants “to
comply with state and federal law.” But an injunction may not enjoin “all
possible breaches of the law.” Hartford–Empire Co. v. United States, 323
U.S. 386, 410, 65 S.Ct. 373, 89 L.Ed. 322 (1945). And such a vague, broad,
and unenforceable injunction would not satisfy the requirements of Rule
65(d). See Schmidt v. Lessard, 414 U.S. 473, 476, 94 S.Ct. 713, 38 L.Ed.2d
661 (1974).
In essence, Plaintiffs are merely seeking to undo or address the past
harms they allegedly suffered by virtue of the seizure, receivership, and
subsequent administrative proceedings relating to those events, rather than
to prevent prospective violations of law. Plaintiffs allege no act that
Defendants might take in the future which could be addressed by an
injunction. Accordingly, the relief can only reasonably be categorized as
15
retrospective. As such, it does not fall into the Ex Parte Young exception to
state sovereign immunity. See Buchheit v. Green, 705 F.3d 1157, 1159
(10th Cir. 2012).
2. OSBC
Plaintiffs also contend that OSBC is not a state entity or an arm of the
state so is not entitled to immunity.4 Eleventh Amendment immunity
extends to state entities that are deemed to be “arm[s] of the state.” See
Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 429–30, 117 S.Ct. 900,
137 L.Ed.2d 55 (1997).
Whether an entity is an “arm of the State” turns on the entity's
function and character as determined by state law. Will, 491 U.S. at 70.
To determine whether an entity constitutes an “arm of the state,” the Court
examines four factors.
We look to four primary factors in determining whether an entity
constitutes an “arm of the state.” Mt. Healthy [ v. Doyle], 429 U.S.
[274] at 280, 97 S.Ct. 568 [50 L.Ed.2d 471 (1977)]. First, we assess
the character ascribed to the entity under state law. Simply stated, we
conduct a formalistic survey of state law to ascertain whether the
entity is identified as an agency of the state. See Sturdevant, 218 F.3d
at 1164, 1166. Second, we consider the autonomy accorded the entity
under state law. This determination hinges upon the degree of control
the state exercises over the entity. See id. at 1162, 1164, 1166. Third,
we study the entity's finances. Here, we look to the amount of state
funding the entity receives and consider whether the entity has the
ability to issue bonds or levy taxes on its own behalf. See id. Fourth,
we ask whether the entity in question is concerned primarily with local
or state affairs. In answering this question, we examine the agency's
function, composition, and purpose. See id. at 1166, 1168–69.
4
Curiously, Plaintiffs sue OSBC’s employees in their official capacity and refer to them as
“state officials,” yet contend OSBC itself is not an arm of the state.
16
Steadfast Ins. Co. v. Agricultural Ins. Co., 507 F.3d 1250, 1253 (10th Cir.
2007).
a. Character/Autonomy
The statutes which establish the OSBC and delegate the duties to the
bank commissioner are found in Chapter 75 of the Kansas Statutes, which is
captioned “State Departments, Public Officers and Employees.” Although the
caption is not binding, it reflects some common sense. The bank
commissioner is appointed by the governor, subject to confirmation by the
Senate. K.S.A. § 75–1304. Kansas statutes require the secretary of
administration to provide the commissioner with suitable office space at
Topeka. K.S.A. § 75-1306. The OSBC is thus identified by law as a state
office, as its very name suggests. The bank commissioner is required to
devote his or her time and attention to the business and duties of the office
on a full-time basis. K.S.A. § 75-1304(c). Those duties are prescribed by
statutes that provide for some discretion on the part of the commissioner,
but only within the boundaries established by the statutes. See e.g., K.S.A.
§§ 9-1602, 9-1701, 9-1724, 9-1902. The banking commissioner, and
resultingly his office, is by no means autonomous of the state.
b. Funding
OSBC’s manner of financing also points toward its status as an arm of
the state. The parties agree that OSBC is a “self-funded regulatory agency,”
and do not contend that it has any ability to issue bonds or levy taxes on its
17
own behalf. But Kansas statutes require the commissioner to collect fees in
the administration of the programs it regulates (the division of banking and
the division of consumer and mortgage lending). And the bank commissioner
must “remit all moneys received by or for the commissioner from such fees
to the state treasurer.” K.S.A. § 75-1308.
Upon receipt of such remittance, the state treasurer shall deposit the
entire amount in the state treasury. Ten present of each such deposit
shall be credited to the state general fund and the balance shall be
credited to the bank commissioner fee fund. All expenditures from the
bank commissioner fee fund shall be made in accordance with
appropriation acts upon warrants of the director of accounts and
reports issued pursuant to vouchers approved by the bank
commissioner” or his designee.
Id. OSBC’s funding is thus entertwined with state coffers.
c. State v. Local Affairs
Lastly, the OSBC is concerned primarily with state affairs rather than
local affairs, as the general purpose of bank regulation is to protect the
public. “A bank is a quasi public institution.” Knickerbocker Life Ins. Co. v.
Pendleton, 115 U.S. 339, 344, 6 S.Ct. 74, 76 (1885). Maintaining the
solvency and liquidity of state banks in Kansas, regulating banks’ affairs in
the interests of financial order and stability, and encouraging public
confidence in the soundness of the banks with which they do business are
matters of statewide concern. Accordingly, the Court finds that OSBD is an
arm of the state entitled to Eleventh Amendment immunity. For the same
reason, the Court finds that OSBD is not a “person” amenable to suit for
damages under § 1983.
18
V. Damages Claims, Individual Capacity
Plaintiffs also bring damage claims against Defendants Stork, Splichal,
and Thull in their individual capacities. These claims are unaffected by the
analysis above, so the Court reaches the defenses of absolute and qualified
immunity.
A. Absolute Immunity
Defendants first contend that the doctrine of absolute immunity shields
them from liability from damages.
Officials who “seek exemption from personal liability” on the basis of
absolute immunity bear “the burden of showing that such an exemption is
justified by overriding considerations of public policy.” Forrester v. White,
484 U.S. 219, 22 4, 108 S.Ct. 538, 98 L.Ed.2d 555 (1988). Judicial
immunity extends to judges, to those who take acts prescribed by a judge’s
order, or to non-judicial officers when their duties have an integral
relationship with the judicial process. See Cleavinger v. Saxner, 474 U.S.
193, 200, 106 S.Ct. 496, 88 L.Ed.2d 507 (1985) (extending absolute
immunity to federal hearing examiners and administrative law judges).
Defendants contend that they are administrative officials acting in a
quasi-judicial capacity, and “that agency officials performing certain
functions analogous to those of a prosecutor should be able to claim
absolute immunity with respect to such acts.” Butz v. Economou, 438 U.S.
478, 515, 98 S.Ct. 2894, 57 L.Ed.2d 895 (1978). But Prosecutors enjoy
19
absolute immunity only when acting as advocates for the State, not when
acting in the role of an administrator or when conducting investigations.
“[A]cts undertaken by a prosecutor in preparing for the initiation of
judicial proceedings or for trial, and which occur in the course of his
role as an advocate for the State, are entitled to the protections of
absolute immunity.” Buckley v. Fitzsimmons, 509 U.S. 259, ––––, 113
S.Ct. 2606, 2615, 125 L.Ed.2d 209 (1993). The Court in Buckley
established a dichotomy between the prosecutor's role as advocate for
the State, which demands absolute immunity, and the prosecutor's
performance of investigative functions, which warrants only qualified
immunity. Id. at ––––, 113 S.Ct. at 2515–16.
Hunt v. Bennett, 17 F.3d 1263, 1267 (10th Cir. 1994). And Defendants bear
the burden to show that such an exemption “is justified by overriding
considerations of public policy.” Forrester v. White, 484 U.S. 219, 224, 108
S.Ct. 538, 98 L.Ed.2d 555 (1988); Thomas v. Kaven, 765 F.3d 1183,
1191 (10th Cir. 2014).
The Court applies a functional approach, looking at the nature of the
particular acts taken by each defendant:
“In determining whether particular acts of government officials
are eligible for absolute immunity, we apply a ‘functional approach ...
which looks to the nature of the function performed, not the identity of
the actor who performed it.’ ” Malik v. Arapahoe Cnty. Dep't of Soc.
Servs., 191 F.3d 1306, 1314 (10th Cir. 1999) (quoting Buckley v.
Fitzsimmons, 509 U.S. 259, 269, 113 S.Ct. 2606, 125 L.Ed.2d 209
(1993)). “The more distant a function is from the judicial process, the
less likely absolute immunity will attach.” Snell v. Tunnell, 920 F.2d
673, 687 (10th Cir. 1990).
Thomas, 765 F.3d at 1192. Defendants will be absolutely immune only when
they are acting in their capacity as legal advocates—initiating court actions
or testifying under oath—not when performing administrative, investigative,
20
or other functions. Id. See Rehberg v. Paulk, __ U.S.__, 132 S.Ct. 1497,
1507, 182 L.Ed.2d 593 (2012) (finding a complaining witness who procures
an arrest and initiates a criminal prosecution not entitled to absolute
immunity).
1. Defendant Thull
Defendant Thull allegedly determined the Bank was insolvent, issued
the Declaration of Insolvency, took charge of the Bank, and placed it under
FDIC receivership. Absolute immunity is not routinely granted to those who
decide to take emergency actions prior to the operation of the judicial
process. See e.g., Thomas, 765 F.3d at 1193 (denying absolute immunity to
doctors and therapist who placed an emergency medical hold on a patient’s
discharge); Snell v. Tunnell, 920 F.2d 673, 690 (10th Cir. 1990) (declining
to extend absolute immunity to social worker’s efforts to gain protective
custody before filing a petition in court); Spielman v. Hildebrand, 873 F.2d
1377, 1383 (10th Cir. 1989) (holding that SRS employees were not entitled
to absolute immunity in removing a child from a home without a court order
because they “acted unilaterally prior to the operation of the judicial
process” (internal quotation marks omitted)). The Court finds Defendant
Thull’s acts are not protected by absolute immunity, as they are too far
removed from the judicial process to warrant application of that doctrine.
See Horowitz v. State Bd. of Medical Examiners of the State of Colorado,
822 F.2d 1508, 1512 (10th Cir.), cert. denied, 484 U.S. 964 (1987).
21
2. Defendant Stork
Defendant Stork is alleged only “to have been closely involved in the
determination that the Bank was insolvent.” Dk. 21, p. 11. Neither party has
shown with particularity what her participation was in the relevant events.
Because Defendants have not shown that the extent of her participation in
the events giving rise to this case was quasi-judicial in nature, she does not
enjoy absolute immunity.5 “The presumption is that qualified rather than
absolute immunity is sufficient to protect government officials in the exercise
of their duties.” Burns v. Reed, 500 U.S. 478, 486–87, 111 S.Ct. 1934, 114
L.Ed.2d 547 (1991).
3. Defendant Splichal
Defendant Splichal presided over Plaintiff’s 2012 administrative
hearing before the OSBC, so determined what discovery to permit and
decided the parties’ cross-motions for summary judgment. These acts are
directly related to the conduct of an administrative hearing governed by the
KAPA so are quasi-judicial in nature, warranting absolute immunity. The
Tenth Circuit has recognized that “officials in administrative hearings can
claim the absolute immunity that flows to judicial officers if they are acting
in a quasi-judicial fashion.” Guttman v. Khalsa, 446 F.3d 1027, 1033 (10th
Cir. 2006) (finding presiding officer of hearing by Board of Medical
Examiners enjoyed absolute immunity) (citing Butz, 438 U.S. at 514). See
5
Nor do Plaintiffs show that she had the individual participation necessary under § 1983,
but the Court does not address this issue since the parties have not raised it.
22
Collins v. McClain, 207 F.Supp.2d 1260, 1262 (D.Kan. 2002) (judicial
immunity extends to administrative hearing officers); Hunt v. Lamb, 2006
WL 2726808, *3 (D.Kan., Sept. 22, 2006) (same), appeal dismissed, 220
Fed.Appx. 887 (10th Cir., Apr. 4, 2007).
For an official at an administrative hearing to enjoy absolute immunity,
“(a) the officials' functions must be similar to those involved in the judicial
process, (b) the officials' actions must be likely to result in damages lawsuits
by disappointed parties, and (c) there must exist sufficient safeguards in the
regulatory framework to control unconstitutional conduct.” Guttman, 446
F.3d at 1033 (quoting Horwitz, 822 F.2d at 1513) (internal quotation marks
omitted). See Moore v. Gunnison Valley Hosp, 310 F.3d 1315, 1317 (10th
Cir. 2002) (reciting six-factor test).
These conditions are met as to Defendant Splichal. Deciding who will
serve as the presiding officer, how much discovery to permit, whether to
hold a hearing or require briefing on summary judgment, when to issue an
order on cross-motions on summary judgment motions, and what the
content of that order will be are functions similar to those involved in the
judicial process. Secondly, his actions are likely to result in damages
lawsuits by disappointed parties, as this very suit demonstrates. And the
KAPA, K.S.A. § 77-501 et seq, and the KJRA, § 77-601 et seq, provide
sufficient safeguards in the regulatory framework to control unconstitutional
conduct of the type alleged here. See e.g., K.S.A. § 77-527 (permitting
23
petitions for review initial orders); § 77-631 (permitting entitlement to
interlocutory judicial review for persons aggrieved by an agency’s failure to
act in a timely manner, and permitting subsequent petition for judicial
review of final orders). Even if Defendant Splichal’s acts were in error, they
were nevertheless acts performed in furtherance of the judicial process so
are protected. See Stump v. Sparkman, 435 U.S. 349, 356–57, 362, 98
S.Ct. 1099, 55 L.Ed.2d 331 (1978); Morkel, 513 Fed.Appx. at 730.
Plaintiffs allege that Commissioner Splichal was biased, so the
procedural safeguards were inadequate. But Plaintiffs do not allege any facts
showing actual bias. Instead, Plaintiffs contend that by virtue of
Commissioner Splichal’s position as agency head, he was inherently biased
in favor of the agency.
But the KAPA expressly provides that an agency head may act as
presiding officer, stating:
For all agencies, except for the state court of tax appeals, the agency
head, one or more members of the agency head or a presiding officer
assigned by the office of administrative hearings shall be the presiding
officer.
K.S.A. § 77-514. This is a common procedure in administrative tribunals,
and does not violate due process. See Withrow v. Larkin, 421 U.S. 35, 46–
55, 95 S.Ct. 1456, 1464, 43 L.Ed.2d 712 (1975); Federal Administrative
Procedure Act, 5 U.S.C. § 554(d) (providing that no employee engaged in
investigating or prosecuting may also participate or advise in the
24
adjudicating function, but expressly exempting from that prohibition ‘the
agency or a member or members of the body comprising the agency.').
True, a ‘fair trial in a fair tribunal is a basic requirement of due
process,’ In re Murchison, 349 U.S. 133, 16, 75 S.Ct. 623, 625, 99 L.Ed. 942
(1955), and this applies to administrative agencies as well as to courts.
Gibson v. Berryhill, 411 U.S. 564, 579, 93 S.Ct. 1689, 1698, 36 L.Ed.2d 488
(1973). But the United States Supreme Court has squarely and repeatedly
held that an administrative agency can be the investigator and the
adjudicator of the same matter without violating due process. See Withrow,
421 U.S. at 46–55, and cases cited therein. Here, as in Withrow,
No specific foundation has been presented for suspecting that the
Board had been prejudiced by its investigation or would be disabled
from hearing and deciding on the basis of the evidence to be
presented at the contested hearing. The mere exposure to evidence
presented in nonadversary investigative procedures is insufficient in
itself to impugn the fairness of the board members at a later adversary
hearing. Without a showing to the contrary, state administrators ‘are
assumed to be men of conscience and intellectual discipline, capable of
judging a particular controversy fairly on the basis of its own
circumstances.’ United States v. Morgan, 313 U.S. 409, 421, 61 S.Ct.
999, 1004, 85 L.Ed. 1429 (1941).
Withrow, 421 U.S. at 55. Defendant Splichal is thus entitled to absolute
immunity.
B. Qualified Immunity
Defendants Thull, Splichal, Schuster, and Stork additionally contend
that their acts are entitled to qualified immunity.
A government official sued under §1983 is entitled to qualified
immunity unless the official violated a statutory or constitutional right
25
that was clearly established at the time of the challenged conduct. See
Ashcroft v. al-Kidd, 563 U. S. ___, ___ (2011) (slip op., at 3). A right
is clearly established only if its contours are sufficiently clear that “a
reasonable official would understand that what he is doing violates
that right.” Anderson v. Creighton, 483 U. S. 635, 640 (1987). In
other words, “existing precedent must have placed the statutory or
constitutional question beyond debate.” al-Kidd, 563 U. S., at ___ (slip
op., at 9). This doctrine “gives government officials breathing room to
make reasonable but mistaken judgments,” and “protects ‘all but the
plainly incompetent or those who knowingly violate the law.’” Id., at
___ (slip op., at 12) (quoting Malley v. Briggs, 475 U. S. 335, 341
(1986)).
Carroll v. Carman, et ux, 574 U.S. __, slip op. 2014 WL 5798628 (Nov. 10,
2014).
Once a defendant raises the defense of qualified immunity, the plaintiff
must “come forward with facts or allegations to show both that the
defendant's alleged conduct violated the law and that law was clearly
established when the alleged violation occurred.” Pueblo Neighborhood
Health Ctrs. v. Losavio, 847 F.2d 642, 646 (10th Cir. 1988). The defendant
prevails unless such a showing is made on both elements. Snell, 920 F.2d at
696. In order “for a right to be clearly established, there must be a Supreme
Court or Tenth Circuit decision on point, or the clearly established weight of
authority from other courts must have found the law to be as the plaintiff
maintains.” Price–Cornelison v. Brooks, 524 F.3d 1103, 1108 (10th Cir.
2008).
Plaintiffs contend that Defendants violated their clearly-established
right to be heard at a meaningful time in a meaningful manner by seizing
the Bank without justification, notice or a pre-deprivation hearing, by
26
denying them a post-deprivation hearing for over three years, by providing a
hearing at which the presiding officer had an inherent conflict of interest and
did not permit Plaintiffs to depose the key witness against them, and by
denying Plaintiffs judicial review of the procedurally-deficient hearing. Dk. 21
p. 27. “The fundamental requirement of due process is the opportunity to be
heard ‘at a meaningful time and in a meaningful manner.’” Mathews v.
Eldridge, 424 U.S. 319, 333 (1976) (quoting Armstrong v. Manzo, 380 U.S.
545, 552 (1965)).
But general propositions of law are insufficient to show a clearly
established right. Ashcroft v. al-Kidd, __ U.S. __, 131 S.Ct. 2074, 2084, 179
L.Ed.2d 1149 (2011).
… the right allegedly violated must be established, “ ‘not as a broad
general proposition,’ ” Brosseau v. Haugen, 543 U.S. 194, 198, 125
S.Ct. 596, 160 L.Ed.2d 583 (2004) (per curiam), but in a
“particularized” sense so that the “contours” of the right are clear to a
reasonable official, Anderson, supra, at 640, 107 S.Ct. 3034.
Reichle v. Howards, 566 U.S. __, 132 S.Ct. 2088, 2094, 182 L.Ed.2d 985
(2012).
1. Lack of pre-deprivation hearing
Assuming that Plaintiffs had a protected interest in the matters seized
by Defendants, the Court first asks whether Defendants violated clearlyestablished law by not holding a pre-deprivation hearing.
“The mere fact that the state or its authorities acquire possession or
control of property as a preliminary step to the judicial determination of
27
asserted rights in the property is not a denial of due process. (Cases
omitted.)” Anderson Nat. Bank v. Luckett, 321 U.S. 233, 247, 64 S.Ct. 599,
606-607 (1944) (holding the State Commissioner of Revenue could transfer
abandoned bank deposits to State Department of Revenue). Plaintiffs rely on
the law that “[g]enerally, the government may not deprive someone of a
protected property right without first conducting “some sort of hearing.”
Camuglia v. City of Albuquerque, 448 F.3d 1214, 1220 (10th Cir. 2006). But
that rule is not absolute, particularly in matters of public health and safety.
Due process, however, “is flexible and calls only for such procedural
protections as the particular situation demands.” Id. (quoting Mathews
v. Eldridge, 424 U.S. 319, 334, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976)).
For example, “[i]n matters of public health and safety, the Supreme
Court has long recognized that the government must act quickly.” Id.
Collvins v. Hackford, 523 Fed.Appx. 515, 518, 2013 WL 1319525, 3 (10th
Cir. 2013).
The Tenth Circuit has found public health and safety reasons justifying
the lack of a pre-deprivation hearing in many cases, including the following:
the government closed a restaurant for improper use of pesticides,
Camuglia, 448 F.3d 1214; the school district suspended an employee for
errors causing a substantial budget deficit, Kirkland v. St. Vrain Valley Sch.
Dist. No. Re–1J, 464 F.3d 1182, 1194 (10th Cir. 2006); the city quarantined
animals suspected to have rabies, Clark v. City of Draper, 168 F.3d 1185,
1189–90 (10th Cir. 1999); the state investigated a child care center for
claims of abuse, Ward v. Anderson, 494 F.3d 929, 937 (10th Cir. 2007); and
28
the state suspended a boiler inspector’s certificate because of school safety
concerns, Collvins, 523 Fed.Appx. 515 (10th Cir. 2013).
Similarly, the United States Supreme Court has held that no predeprivation hearing is required when a bank is placed under conservatorship
to guard against its failure. See Fahey v. Mallonee, 332 U.S. 245, 254
(1947). A reasonable person would have known this law. But Plaintiffs
contend that Fahey provides no justification for Defendants’ acts because a
receiver takes permanent control of the property, while a conservator does
so only for a limited period of time before returning control to the owner. But
even assuming this is so, Defendants have not explained how this distinction
warrants a pre-deprivation hearing, and have not shown where this
distinction is made in clearly-established law. See Franklin Sav. Ass'n v.
Office of Thrift Supervision, 821 F.Supp. 1414 (D.Kan. 1993) (“without
exception, the courts agree that in this setting a post-deprivation
opportunity for judicial review extends all the procedural protection required
by the Constitution.”). Accordingly, Plaintiffs have failed to show that the
Defendant's failure to provide a pre-deprivation hearing violated clearlyestablished law.
2. Delay in post-deprivation hearing
Plaintiffs received an opportunity for a post-deprivation hearing and
have not shown any prejudice by virtue of the delay in receiving it. Instead,
29
Plaintiffs contend that a three-year delay6 is per se unconstitutional.
Supreme Court cases establish the importance of providing a prompt
post-deprivation hearing where no pre-deprivation hearing is held. See e.g.,
Mitchell v. W. T. Grant Co., 416 U.S. 600, 606, 94 S.Ct. 1895, 40 L.Ed.2d
406 (1974); North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601,
606–07, 95 S.Ct., 719, 722–723, 42 L.Ed.2d 751 (1975); Barry v. Barchi,
443 U.S. 55, 63-64, 99 S.Ct. 2642, 61 L.Ed.2d 365 (1979)). See generally
Connecticut v. Doehr, 501 U.S. 1, 22, 111 S.Ct. 2105, 2118 (1991) (“Our
cases have repeatedly emphasized the importance of providing a prompt
postdeprivation hearing at the very least.”) “[E]ven when ... a pre-hearing
removal is justified, the state must act promptly to provide a post-removal
hearing.” Gomes v. Wood, 451 F.3d 1122, 1128 (10th Cir. 2006) (quotations
omitted).
But merely relying on case law requiring a post-deprivation hearing to
be “prompt” is insufficient. Collvins, at 520. Plaintiffs must cite case law
more specifically applicable.
As an initial matter, case law from the Supreme Court and Tenth
Circuit presents no bright-line rules as to when a delay becomes
unconstitutional. In fact in one case, the Supreme Court held that a 9–
month delay in holding a hearing is not per se unconstitutional.
Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 547, 105 S.Ct.
1487, 84 L.Ed.2d 494 (1985). Rather, the precedent indicates that the
determination of the constitutionality of a delay is a fact-intensive
analysis based on the factors described [in] Mallen, 486 U.S. at 242,
6
Plaintiffs do not show the court how they calculate that period of time. The counting
presumably beings on the date of seizure, August of 2008, and ends three years thereafter
but the record does not reflect a hearing or other event in August of 2011
30
108 S.Ct. 1780. There is no precedent sufficiently on point with this
case that could have put Defendants on notice that the delay was
unconstitutional.
Collvins, 523 Fed.Appx. at 520. The same is true here.
“[E]ven though there is a point at which an unjustified delay in
completing a post-deprivation proceeding ‘would become a constitutional
violation,’ Cleveland Bd. of Education v. Loudermill, 470 U.S. S. 532, 547,
105 S.Ct. 1487, 1496, 84 L.Ed.2d 494 (1985), the significance of such a
delay cannot be evaluated in a vacuum.” Federal Deposit Ins. Corp. v.
Mallen, 486 U.S. 230, 242, 108 S.Ct. 1780, 1788 (1988). In determining
how long a delay is justified in affording a post-deprivation hearing and
decision, the Court examines a number of factors. Mallen, 486 U.S. at 242.
These include “1) the importance of the private interest and the harm to this
interest occasioned by delay; 2) the justification offered by the Government
for delay and its relation to the underlying governmental interest; and 3) the
likelihood that the interim decision may have been mistaken.” Id.
a. CFC’s Interest
CFC has a valid interest in avoiding the arbitrary seizure of its
business, even if that seizure lasts only for a limited time. See Connecticut
v. Doehr, 501 U.S. 1, 11–13, 111 S.Ct. 2105, 2113, 115 L.Ed.2d 1 (1991).
But Banks are subject to constant and intensive government regulation, so
the banks' interest, and thus CFC’s interest, is diminished.
31
b. Defendants’ Interest
The State has a substantial interest in in protecting depositors and
upholding public faith in financial institutions, which compels it to move
quickly to seize insolvent institutions. Cf, Franklin, 821 F.Supp. at 1423
(examining the federal government’s “compelling interest in regulating
banks.”). The seizure of an insolvent bank and the appointment of the FDIC
as receiver are integral parts of the Kansas statutory plan to protect
depositors and uphold the public confidence in financial institutions. Cf,
Mallen, 486 U.S. at 241. Requiring a pre-seizure hearing could expose both
depositors and the FDIC insurance fund to further losses from the continued
operation of a failed institution by its management. Haralson v. Federal
Home Loan Bank Bd., 837 F.2d 1123, 1127 (D.C.Cir.1988). Equally strong is
the Government's interest in swiftly disposing of assets and liabilities after a
seizure takes place in order to ensure the smooth transfer of a bank's
deposits and branches to other institutions, as well as to minimize losses for
both depositors and taxpayers that could occur if the Government had to
hold on to a bank's assets whose value is declining. Cf. 58 Fed.Reg. 6,363,
6,365 (1993) (noting that the value of an institution's deposits depends in
part upon the stability of those deposits); 57 Fed.Reg. 11,005, 11,006
(1992) (same).
In other contexts, the Supreme Court has found the government's
interest in protecting depositors and preserving the integrity of the banking
32
industry sufficiently strong to justify seizing a bank, suspending a bank's
officers, and attaching liens against the property of a bank's stockholders
without a prior hearing. Fahey, 332 U.S. at 253–54 (upholding appointment
of conservator of a bank during an investigation into unsound banking
practices, with administrative hearing provided after the seizure); FDIC v.
Mallen, 486 U.S. 230, 241–42, 108 S.Ct. 1780, 1788–89, 100 L.Ed.2d 265
(1988) (upholding suspension of indicted bank officer where the government
would grant an administrative hearing within 30 days of a request to do so);
Coffin Bros. v. Bennett, 277 U.S. 29, 48 S.Ct. 422, 72 L.Ed. 768 (1928)
(upholding the government's power to place a lien on the property of a
bank's stockholders to pay depositors of a failed bank, where a postattachment trial would serve as the hearing).
The State’s interests here are no less compelling. Recognizing that
swift action is often necessary to minimize economic loss in instances of
troubled and failing financial institutions, the legislature has given a great
amount of control and authority to the OSBC in the event of such crises. See
generally K.S.A. § 9-1807 to 9-1918.
And the record shows justification for much of the delay in granting
Plaintiffs a post-deprivation hearing. Within a month after the seizure, in
September of 2008, the Plaintiffs filed a petition for judicial review which
was not decided until March of 2010. That 18-month delay was attributable
to the state district court rather than to any Defendant, and was spent
33
giving Plaintiffs the process they had requested. Accordingly, that eighteen
month delay was justifiable. Similarly, Plaintiffs fail to show why any postremand time (from March 29, 2010 to April 18, 2012) expended in the
reasonable progress of administrative proceedings (including conducting
discovery, compiling facts, briefing cross motions for summary judgment,
and awaiting a decision) should be counted as unjustified delay.
c. Risk of Error
As for the risk of error, the administrative and judicial review process
included numerous safeguards against an arbitrary seizure of the Bank.
From the very beginning, CFC had multiple opportunities, ranging from
informal meetings to inspections to issuance of the cease and desist order,
by which to challenge arbitrary actions. CFC chose to waive any challenge to
issuance of the cease and desist order, but was necessarily on notice of the
severity of the Bank’s financial condition. The subsequent Declaration told
Plaintiffs they had 30 days in which to file a petition for judicial review, told
them where to file it, and told them who the agency officer was to receive
service of process on behalf of the OSBC. Dk. 15, Exh. 1. Plaintiffs availed
themselves of that opportunity, and on remand participated in administrative
hearing procedures. When those procedures were completed in Defendants’
favor, Plaintiffs once again appealed by filing a petition for judicial review of
the administrative action (summary judgment decision) with the State
district court. When that decision favored the Defendants, Plaintiffs appealed
34
it to the Kansas Court of Appeals, and upon losing yet again filed a petition
for review with the Kansas Supreme Court. Given the events preceding the
seizure and receivership, and the multiple layers of procedural protection
afforded to Plaintiffs by virtue of the KAPA and KJRA after the seizure and
receivership, the risk of error is substantially limited.
The determination of the constitutionality of a delay is a fact-intensive
analysis, not a bright-line rule. In light of the Government's need to act
swiftly, the limited nature of CFC’s interest, and the procedures in place to
minimize the risk of an erroneous decision, the Court finds no due process
defect in the timing of CFC’s hearing that would have been obvious to
reasonable persons. Plaintiffs provide no well-established law showing that a
reasonable person should have known that the delay here was
unconstitutionally lengthy under the circumstances shown by the record.
3. Hearing Officer Bias
Plaintiffs’ claim that Defendant Splichal was biased when serving as
the presiding officer throughout their administrative proceedings has been
addressed above. Based on case law contradicting Plaintiffs’ position,
Plaintiffs cannot show that reasonable persons should have known that
having the agency head serve as the deciding officer during the postdeprivation proceedings violated clearly-established law.
35
4. Lack of Discovery
Plaintiffs also complain that although they were permitted to depose
Defendant Stork, they were not permitted to depose Commissioner Thull
who decided to seize the Bank. But Plaintiffs do not explain what reason they
were given for not being permitted to depose Defendant Thull, what they
hoped to learn from this desired discovery, or how they were prejudiced by
not deposing Thull.
Administrative proceedings may conform to the due process
requirements of the fifth amendment without granting the full panoply of
pretrial discovery weapons available to litigants in federal court. Parties to
judicial or quasi-judicial proceedings are not entitled to discovery as a
matter of constitutional right. To the contrary, courts generally accord
agencies broad discretion in fashioning hearing procedures. Vermont Yankee
Nuclear Power Corp. v. NRDC, Inc., 435 U.S. 519, 543, 98 S.Ct. 1197, 1211,
55 L.Ed.2d 460 (1978). Even where a case is remanded for an insufficient
record, the agency should normally be allowed to “exercise its administrative
discretion in deciding how, in light of internal organization considerations, it
may best proceed to develop the needed evidence and how its prior decision
should be modified in light of such evidence as develops.” FPC v.
Transcontinental Gas Pipe Line Corp., 423 U.S. 326, 333, 96 S.Ct. 579, 46
L.Ed.2d 533 (1976).
36
In Kansas, administrative discovery decisions, by statute, are within
the discretion of the presiding officer, who may specify the times during
which the parties may pursue discovery and may issue protective orders.
See K.S.A. 77-522. A person aggrieved by a lack of discovery has a right to
petition for review of an initial order, as well as a subsequent right to
petition for review of final orders. See K.S.A. § 77-527, 77-601 et seq.
Plaintiffs do not show any law clearly establishing that due process requires
administrative hearing officers to permit the parties to depose whomever
they wish or to engage in unlimited discovery during administrative
proceedings.
Under the circumstances shown by the record, Defendants are entitled
to qualified immunity for this and other discovery decisions made during
Plaintiffs’ administrative proceedings. “Because neither the Supreme Court
nor the Tenth Circuit has any precedent that would have put Defendants on
notice that their actions may have been unconstitutional, they are entitled to
qualified immunity.” Collvins, 523 Fed.Appx. at 520-21, 2013 WL 1319525,
5.
5. Denial of judicial review
Lastly, Plaintiffs allege that Defendants denied them judicial review of
the procedurally-deficient hearing. The record reveals, however, that
Plaintiffs twice received judicial review – once in September of 2008
approximately a month after the seizure, and once after Commissioner
37
Splichal’s decision on the cross-motions for summary judgment, which
decision specifically stated that the Bank and CFC had the right to petition
for judicial review.
Plaintiffs apparently complain of the fact that the OSBC, in its motion
to dismiss Plaintiffs’ second petition for review, contended that no remedy
was available. The state court agreed so dismissed the petitions as moot on
January 30, 2013. But Plaintiffs show no clearly established law that
Defendants allegedly violated by taking such a legal position. Accordingly,
Defendants are entitled to qualified immunity on each of the claims made in
this case.
VI. Waiver of Due Process
Defendants contend throughout their brief that Plaintiffs expressly
waived their due process rights by signing the resolution, the consent
agreement, and the cease and desist order. But Defendants have not shown
that the waiver extends to the enforcement proceedings challenged in this
lawsuit.
The Bank’s resolution consented to the cease and desist order, and
waived
any right to such a notice of charges, a hearing, defenses, findings of
fact, conclusions of law, a recommended decision by an Administrative
Law Judge or other hearing officer, exceptions and briefs with respect
to such recommended decision, and judicial review under Kansas
Statutes Annotated § 77-601 et seq., or any other challenge to the
validity of the Order.
38
Dk. 15, Exh. 2. Id., p. 32. The cease and desist order itself stated that the
Bank consented to issuance of the order “solely for the purpose of this
proceeding,” and that the Bank waived its procedural due process rights and
its rights under the KAPA and the KJRA “or any other challenge to the
validity of the ORDER.” Id, p. 35. It defined “the Order” as the cease and
desist order. Id, p. 34.
The plain language appears to waive only the procedures to determine
whether a cease and desist order should be issued. See K.S.A. 9-1807
(providing for a hearing in the latter event). Accordingly, for purposes of this
motion only, the Court finds no waiver.
VII. CFC - Real Party in Interest
Defendants contend that CFC, as the sole shareholder of the Bank, is
not the real party in interest. Defendants state that CFC was not a party to
the OSBC or FDIC’s actions or agreements, and suffered no injury in fact.
Defendants claim that “injury arising solely out of harm done to a subsidiary
corporation is generally insufficient to confer standing or status as real party
in interest on a parent corporation,” and that a parent corporation cannot
pierce the corporate veil to advance the claims of its subsidiary. Dk. 15, p.
31-32.
CFC counters that the injury did not solely arise from harm done to its
subsidiary, but that it was injured because its ownership interest in the Bank
effectively ceased to exist upon Defendants’ tender of the Bank to
39
receivership. Dk. 21, p. 31. It adds that the policy behind Rule 17(a)’s real
party in interest requirement is met because the only parties harmed by
Defendants’ seizure are joined as Plaintiffs, so Defendants run no risk of
facing a later action from another party entitled to recover. The court
agrees. Where, as here, the acts challenged are the seizure, the appointing
of a receiver, and the procedures by which to do to, CFC has sufficiently
alleged its own injury, despite the fact that title to the Bank’s assets vested
in the FDIC upon its acceptance of the appointment as receiver.
IT IS THEREFORE ORDERED that Defendant’s motion to dismiss is
granted.
Dated this 18th day of November, 2014, at Topeka, Kansas.
s/Sam A. Crow
Sam A. Crow, U.S. District Senior Judge
40
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