Summary
In Tex. Sav. Cmty. Bankers Ass'n v. Fed. Hous. Fin. Bd., 1998 WL 842181, (W.D.Tex.), aff'd, 201 F.3d 551 (5th Cir. 2000), the plaintiffs argued that the defendant violated the CRA by failing to submit a report of a new rule to Congress.
Summary of this case from U.S. v. Southern Indiana Gas Electric CompanyOpinion
NO. A 97 CA 421 SS
June 25, 1998, Decided . June 25, 1998, Filed
For TEXAS SAVINGS & COMMUNITY BANKERS ASSOCIATION, WORLD SAVINGS BANK, SSB, WESTERN LEAGUE OF SAVINGS INSTITUTIONS, WORLD SAVINGS AND LOAN ASSOCIATION, FSLA, CHARTER ONE BANK, FSB, plaintiffs: Harris Weinstein, Michael A. Listgarten, Karen D. Coombs, Covington & Burling, Washington, DC. Charles B. Kreutz, Locke Purnell Rain Harrell, Austin, TX. William B. Steele, III, Locke Purnell Pain Harrell, Austin, TX.
For FEDERAL HOUSING FINANCE BOARD, defendant: Ernest C. Garcia, Assistant United States Attorney, Austin, TX. Arthur R. Goldberg, U. S. Department of Justice, Civil Division, Washington, DC. Andrea M. Sharrin, U. S. Department of Justice, Civil Division, Washington, DC.
For THE OHIO LEAGUE OF FINANCIAL INSTITUTIONS, HEARTLAND COMMUNITY BANKERS ASSOCIATION, amici: Marianne E. Roche, Ohio League of Financial Institutions, Columbus, OH.
For FEDERAL HOME LAND BANK OF CHICAGO, ANCHORBANK, S.S.B., FIRST FEDERAL SAVINGS BANK LACROSSE-MADISON, FIRST FINANCIAL BANK, LASALLE BANK F.S.B., LIBERTY FEDERAL SAVINGS BANK, MID AMERICA FEDERAL SAVINGS, STATE BANK OF CROSS PLAINS, ILLINOIS LEAGUE OF FINANCIAL INSTITUTIONS, WISCONSIN LEAGUE OF FINANCIAL INSTITUTIONS, FEDERAL HOME LOAN BANK OF ATLANTA, FEDERAL HOME LOAN BANK OF DES MOINES, FEDERAL HOME BANK OF INDIANAPOLIS, FEDERAL HOME LOAN BANK OF NEW YORK, FEDERAL HOME LOAN BANK OF PITTSBURGH, amici: Thomas P. Vartanian, David L. Ansell, James S. Kennell, Fried, Frank, Harris Shriver & Jacobson, Shriver & Jacobson, Washington, DC.
For NATIONAL ASSOCIATION OF HOME BUILDERS ("NAHB"), amicus: Rosemary Stewart, Spriggs & Hollingsworth, Washington, DC.
ORDER
BE IT REMEMBERED that on the 26th day of March 1998, the Court held a hearing on pending matters in the above-styled cause. The plaintiffs and defendant were present through representation of counsel, as were amici curiae the Federal Home Loan Bank of Chicago and related amici. The parties competently and persuasively made arguments on difficult issues of statutory construction. After consideration of the oral arguments, the briefs and supplemental briefs, the facts of this case, and the applicable law, the Court enters the following opinion and orders granting summary judgment to the defendant.
I. Background
The plaintiffs are three thrift institutions and two of their trade associations: World Savings Bank, SSB, World Savings and Loan Association, FSLA, Charter One Bank, FSB, the Texas Savings and Community Bankers Association, and the Western League of Savings Institutions. The defendant is the Federal Housing Finance Board ("FHFB"), an independent agency of the executive branch of the United States government. The FHFB regulates and supervises the twelve Federal Home Loan Banks ("FHLBanks") that together constitute the FHLBank System.
World Savings Bank, SSB is a savings bank with two offices in Texas. World Savings and Loan Association, FSLA is a savings and loan association with a main office in California and nineteen branch offices in Texas and other branch offices in Arizona, California, Colorado, Florida, Illinois, Kansas, and New Jersey. Charter One Bank, FSB is a savings bank with a main office in Ohio and offices in Ohio, Indiana, Kentucky, and Michigan. The Texas Savings and Community Bankers Association is an association of savings and loan associations and savings banks in Texas. The Western League of Savings Institutions is an association headquartered in California with members that are savings banks and savings and loan associations in Arizona, California, and Nevada.
The amici curiae that argued at oral argument and offered a brief were the FHLBank of Chicago, Anchorbank, S.S.B., First Federal Savings Bank of LaCrosse-Madison, First Financial Bank, LaSalle Bank, FSB, Liberty Federal Bank, Mid America Federal Savings Bank, State Bank of Cross Plains, Illinois League of Financial Institutions, Wisconsin League of Financial Institutions, Ltd., the FHLBank of Atlanta, the FHLBank of Des Moines, the FHLBank of Indianapolis, the FHLBank of New York, and the FHLBank of Pittsburgh (collectively "FHLBank Chicago amici"). Another amicus curiae, the National Association of Home Builders ("NAHB"), filed a brief in support of the defendant. The final group of amici curiae, which filed a brief in support of the plaintiffs, consists of the Ohio League of Financial Institutions and the Heartland Community Bankers Association (collectively "plaintiff amici").
Each of the FHLBank amici have purchased from the Chicago FHLBank participation interests in mortgages originated under the Mortgage Partnership Finance ("MPF") Program, referred to in this opinion as the Chicago program. Each of the amici which are financial institutions are member institutions of the FHLBank Chicago and have originated loans through the Chicago program. The two leagues of financial institutions are trade associations representing 186 saving institutions in Illinois and Wisconsin.
The NAHB is a federation of more than 850 state and local builders' associations with a membership of over 190,000 employers who employ over 8,000,000 individuals. The NAHB states it has an interest in encouraging home ownership by as many Americans as possible, and that the FHFB's challenged policies are beneficial to that interest.
The plaintiff amici are trade associations representing over 200 savings institutions in Colorado, Kansas, Kentucky, Nebraska, Ohio, Oklahoma, and West Virginia. Their members are all members of the FHLBanks of Cincinnati, Pittsburgh, or Topeka, and their members' primary business is the origination or purchase of residential mortgage loans.
This case arises out of a challenge to the FHFB's promulgation of section II.B.12 of its Financial Management Policy ("FMP") and the FHFB's Chicago pilot program, which provides a new policy for the Chicago FHLBank in dealing with the home mortgage lending industry. The plaintiffs allege they are competitively harmed by the FHFB's improper interpretation of the statute at issue and the improper implementation of programs under the statute. Specifically, the plaintiffs argue the FHFB has no authority to carry out FMP § II.B.12 or the Chicago pilot program because (1) the FHLBanks may not act as retail mortgage lenders, (2) the FHLBanks may not directly purchase home mortgages and consider such transactions permissible investments in securities, and (3) the FHLBanks may not engage in the conduct at issue under their incidental powers. Furthermore, the plaintiffs argue the FHFB's promulgation of FMP § II.B.12 and the Chicago program has procedurally violated the notice and comment requirements of the Administrative Procedures Act ("APA"), 5 U.S.C. §§ 551 et seq., and the Contract With America Advancement Act ("CWAAA"), 5 U.S.C. §§ 801 et seq.
In essence, this is one of the many cases in which a series of financial activities can be characterized in different manners (wholesale or retail; security or purchase; agency or not), and the statutory language can be interpreted in different ways. Each side has a plausible argument that its characterizations are correct.
As a preliminary matter, it is easy for the Court to determine that the plaintiffs have standing to bring this lawsuit in light of the recent Supreme Court case, National Credit Union Administration v. First National Bank & Trust Co., 140 L. Ed. 2d 1, 118 S. Ct. 927 (1998) ("NCUA"). NCUA held that bankers' associations had standing to challenge the National Credit Union Administration's ("NCUA") interpretation of the National Credit Union Act because the interpretation had a competitive effect on the bankers. 118 S. Ct. at 933. Just as an interest "arguably to be protected" by the National Credit Union Act was the interest in limiting the markets that federal credit unions may serve, NCUA, 118 S. Ct. at 935-36, so is limiting the lending activities and powers of the FHLBanks an interest "arguably to be protected" by the FHLBank Act. And just as the bankers were parties within the "zone of interest" of the statute asserting that interest in NCUA, id. at 936, so are the plaintiff lending institutions within the "zone of interest" of the FHLBank Act in asserting their interests. In short, NCUA makes standing a non-issue in this case.
Both parties have filed motions for summary judgment, and both parties and the numerous amici have provided numerous affidavits, documents, and exhibits. Rule 56(c) of the Federal Rules of Civil Procedure provides for summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Because issues of legal interpretation predominate and there is little if any disagreement on the factual record before the Court, this is a prime case to be determined by cross-motions for summary judgment.
II. General Statutory Authority
The FHFB is an independent federal agency of the executive branch that oversees twelve FHLBanks and whose primary duty is to ensure that FHLBanks operate in a financially safe and sound manner. See 28 U.S.C. § 1422a (establishment), § 1422b (powers & duties). The FHLBanks were created in 1932 by the Federal Home Loan Bank Act, H.R. 12280, 72d Cong. 2d Sess., Pub. L. No. 304 (1932), 12 U.S.C. §§ 1421-1429. The Federal Home Loan Bank Board was the original governing body of the FHLBanks, but in 1989 the FHFB was created to govern them. Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 101 Stat. 183 (codified as amended at 12 U.S.C. § 1422a). Aside from ensuring the safety and soundness of the FHLBanks, the FHFB has statutory duties to supervise the FHLBanks, ensure that they carry out their housing finance mission, and ensure that they remain adequately capitalized and able to raise funds in the capital markets. 28 U.S.C. § 1422a(a)(3)(B). The FHFB has the power to "promulgate and enforce such regulations and orders as are necessary from time to time to carry out the provisions of" the Act. 28 U.S.C. § 1422b(a)(1).
These twelve FHLBanks each serve a specific geographical district and are headquartered in Boston, New York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, Chicago, Des Moines, Dallas, Topeka, San Francisco, and Seattle. 12 C.F.R. pt. 900, subpart A app.
In order to carry out this housing finance mission, Congress granted the FHLBanks many specific powers. For example, the FHLBanks may make advances to their members and other specified mortgage lenders, 12 U.S.C. § 1430(a), and they may finance their operations with bonds and debentures, 12 U.S.C. § 1431(a). FHLBanks may accept deposits from their members, from each other, and from other federal instrumentalities, but not from the general public, 12 U.S.C. § 1431(e)(1); and FHLBanks may provide a check clearing and payments system for their members, 12 U.S.C. § 1431(e)(2)(A). The FHLBanks are also permitted as "necessary" to exercise powers incidental to their borrowing and payment system activities, 12 U.S.C. § 1431(a), but they are expressly prohibited from "transacting any banking or other business not incidental to activities authorized by this Act," 12 U.S.C. § 1431(e)(1).
Because the FHLBanks hold large amounts of assets, they are empowered to invest certain assets. An FHLBank may invest its surplus assets, except those required for advances, in "mortgages, obligations, or other securities which are or ever have been sold by [Freddie Mac] . . . and in such securities as fiduciary and trust funds may be invested in under the laws of the State in which the [FHLBank] is located." 12 U.S.C. § 1431(h). Reserve funds may be invested in a similar manner. 12 U.S.C. § 1436(a).
III. FMP § II.B.12 and the Chicago Pilot Program
The FHFB's Financial Management Policy ("FMP") is a series of guidelines and policies which supplement the governing regulations of the FHFB by providing a framework "within which the [FHLBanks] may implement financial management strategies in a prudent and responsible manner." 62 Fed. Reg. 13,146 (1997). The FHFB in July 1996 amended the FMP to permit FHLBanks to make "investments" that "assist . . . in providing housing and community development financing that is not generally available, or that is available at lower levels or under less attractive terms." Subparts 1 to 11 of FMP § II.B list specific permissible investments, and subpart 12 describes "other" permissible investments. The defendants summarize FMP § II.B.12 by stating that it provides that FHLBanks may make investments that support housing and community development and sets forth procedures which must be satisfied before proposed mission-related investments will be considered by the FHFB for approval.
In December 1996 and January 1997, the FHFB took action to approve the FHLBank of Chicago's proposal to make or purchase home mortgage loans through a Mortgage Partnership Finance ("MPF") pilot program. Under the MPF Program ("the Chicago program"), the Chicago FHLBank commissions its members as agents to originate mortgage loans on its behalf The way the defendant frames it, this is a perfectly legal investment vehicle for the Chicago FHLBank and a housing finance vehicle for member institutions to increase liquidity and manage risks, all to the benefit of consumers. The defendant stresses that the Chicago FHLBank will not originate mortgage loans and will have no contact with consumers. The way the plaintiffs frame it, on the other hand, this is an illegal foray into the retail mortgage market and an illegal investment practice by the Chicago FHLBank.
Under the program, the Chicago FHLBank would invest up to $ 750 million in mortgage loans for one- to four-family homes.
The plaintiffs also make conclusory allegations that the FHFB arbitrarily and capriciously failed to comply with the FMP in its promulgation of the Chicago program. The plaintiffs, however, have failed to raise a fact issue in response to the defendant's summary judgment arguments that the Chicago program does, in fact, comply with the FMP; and the plaintiffs have miserably failed to raise a fact issue that such alleged noncompliance is arbitrary and capricious.
The plaintiffs argue the FHLBank's lending powers are limited to making advances to members and other mortgagees. The plaintiffs argue the program at issue crosses this line and allows FHLBanks to enter the retail residential mortgage business by making and purchasing loans to consumers. The plaintiffs stress that under the scheme long perpetuated by Congress, the FHLBanks' function is clearly to provide wholesale credit to mortgage lenders; and Fannie Mae, Freddie Mac, and Ginnie Mae have the function of purchasing and securitizing residential mortgages.
The plaintiffs consistently characterize the challenged practices as retail mortgage lending, and the defendants consistently characterize them as wholesale.
The plaintiffs further argue that the investment authority of 12 U.S.C. §§ 1431(h) and 1436(a) does not permit the FHLBanks to purchase residential mortgages because residential mortgages are not "securities." Furthermore, FMP § II.B.12 and the Chicago program cannot be justified as exercises of incidental powers because the incidental powers clauses of the FHLBank Act are too narrow to allow them, according to the plaintiffs.
A. Standard of Review of FHFB Interpretation
This Court must judge the FHFB's interpretation of the FHLBank Act by employing the analysis set forth in Chevron USA. v. Natural Resources Defense Council, 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984). Under Chevron's two-part analysis of an agency action, the Court first looks to see if the plain language of the statute expresses Congress' clear and unambiguous intent on the specific question. 104 S. Ct. at 2781; Reich v. Arcadian Corp., 110 F.3d 1192, 1195 (5th Cir. 1997). If the statute is either silent or ambiguous on the precise point in issue, then the question for the Court is "whether the agency's answer is based upon a permissible construction of the statute." Chevron., 104 S. Ct. at 2781-83; Reich, 110 F.3d at 1195. In determining whether the agency's construction of the statute that is ambiguous or silent on the issue is permissible, the Court should afford substantial deference to the interpretation of the agency charged with administering it. Rust v. Sullivan, 500 U.S. 173, 111 S. Ct. 1759, 1767, 114 L. Ed. 2d 233 (1991).
An agency's construction of its own regulations is also entitled to a large amount of deference. The reviewing court must defer to the agency's interpretation unless an "alternative reading is compelled by the regulation's plain language or by other indications of the [agency's] intent at the time of the regulation's promulgation." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 114 S. Ct. 2381, 2386-87, 129 L. Ed. 2d 405 (1994) (citing Gardebring v. Jenkins, 485 U.S. 415, 108 S. Ct. 1306, 1314, 99 L. Ed. 2d 515 (1988)). The agency action will only be set aside as arbitrary, capricious, or an abuse of discretion if it is "plainly erroneous or inconsistent with the regulation." 114 S. Ct. at 2386.
This is the standard the plaintiffs fail to meet in arguing the Chicago program fails to comply with the FMP. See supra note 7.
The defendant takes the contrary position on each of the plaintiffs' points. First, the defendant argues the Chicago program creates a financing vehicle functionally indistinguishable from advances, which the FHLBanks are explicitly permitted to make under section 1430(a). Under section 1430(a), FHLBanks may make long-term advances only "for the purpose of providing funds for residential housing finance." The principal amount of advances a member institution receives from an FHLBank may not exceed the amount of mortgage assets on that member's books. 12 C.F.R. § 935.14. Advances are made on a secured note or obligation under which the member agrees to repay the advance together with any interest and unpaid costs or expenses as required under the terms of the advance. 12 U.S.C. § 1430(c), (d). Furthermore, FHLBanks may, with FHFB approval, sell advances to other FHLBanks or permit other FHLBanks to participate in advances. 12 U.S.C. § 1430(d).
Under the Chicago program, member institutions have the option to underwrite and originate mortgage loans funded either (1) by channeling funds directly from the Chicago FHLBank to the consumer or (2) by funding the loans with their own assets and selling the loans to the FHLBank. In either situation, the member bank services the loan.
To protect against the risks involved, the Chicago program involves two methods of risk coverage beyond the security provided by the mortgages. First, the Chicago FHLBank maintains a "first loss" account, which is a small amount of money reserved from the interest on the loans. This amount is intended to cover all expected losses, based on historical data on loan performances. Second, member institutions provide a "second loss credit enhancement," which is intended to cover any unexpected losses above those covered by the first loss account.
There are many functional similarities between traditional advances and the Chicago program. Under both programs, (1) the FHLBank provides funding for the member institution, which the member institution ultimately provides to the consumers under mortgage loans; (2) the FHLBank is carefully protected from the risk of loss by a mathematically determined amount of collateral; (3) the consumers borrow from the member institution and never have contact with the FHLBank; (4) the member institution decides whether to make the loan and then administers the loan; (5) the FHLBank eventually is paid back for its secured loan, including interest and costs. The only significant difference is that under a traditional advance, the member institution is the mortgagee, and under the Chicago program, the Chicago FHLBank is the mortgagee. This is a technical difference that does not violate the FHLBank Act because (1) the Chicago FHLBank is permitted to hold mortgages as investments and (2) the Chicago FHLBank is given incidental powers to carry out its duties under the FHLBank Act.
The plaintiffs argue the Chicago FHLBank is not properly collateralized under the Chicago program, but the Chicago FHLBank is collateralized by the home mortgages it holds, the money from interest it sets aside for "first loss protection," and the security provided by the member banks in the "second loss credit enhancement."
The plaintiffs cite several other technical differences, most of which stem from the fact that the Chicago FHLBank is the mortgagee and therefore holds the loan and the direct risk as opposed to having the member bank hold the loan and collateralize the advance from the Chicago FHLBank. No matter how the technical differences are phrased, the Court concludes that financing under the Chicago program is functionally equivalent to financing under traditional advances, and the technical differences are permitted under the investment powers and incidental powers of the FHLBanks.
Furthermore, this technical difference does not, as the plaintiffs argue, convert the Chicago FHLBank's activities into "retail mortgage lending." The member banks are the parties who create and administer the home mortgage loans, and just because the Chicago FHLBank holds the mortgage, that does not make it a "retail mortgage lender," The Chicago FHLBank still functions as a wholesale credit provider under this arrangement. The plaintiffs' conclusory labeling of the defendant's programs as "retail mortgage lending" merely begs the question and does not assist in the statutory analysis.
See 12 U.S.C. § 1422(5) (defining a "home mortgage loan" as "a loan made by a member upon the security of a home mortgage").
Similarly, the plaintiffs claim numerous congressional and executive branch actions between 1932 and 1997 demonstrate that FMP § II.B.12 and the Chicago program are impermissible grants of retail mortgage lending powers to FHLBanks. These authorities are not persuasive or even relevant, however, because the Court finds the FHFB does not permit retail mortgage lending by FHLBanks through the challenged policy and program.
Additionally, the defendant and supporting amici cite many past congressional and executive branch decisions which they argue support their position. Because the Court ultimately finds the FHFB's actions are permissible under the plain language of the FHLBank Act, it is not necessary to engage in detailed analysis of this history, which provides more obfuscation than clarification in this case.
The defendant argues that the Chicago FHLBank's purchasing of residential mortgages is further justified as a permissible investment of FHLBank funds. FHFB argues that under Illinois trust law, a trustee may invest in non-governmental residential mortgages; therefore, an FHLBank may invest surplus assets in such a manner under sections 1431(h) and 1436(a). The defendant argues FHLBanks may invest in mortgages as "securities" because the statutes allow investments in "mortgages, obligations, or other securities," suggesting that mortgages are within the category of securities. 12 U.S.C. §§ 1431(h); 1436(a). The defendant argues that the concept of ejusdem generis supports its argument. Although the Court does not do so in Latin, it agrees with the defendant's argument for the reasons described below.
According to the plaintiffs, the defendant's interpretation of the statutory language as allowing FHLBanks to invest in residential home mortgages as "securities" fails under step one of the Chevron analysis. The plaintiffs look to the Supreme Court's recent decision in NCUA for support. In NCUA, the NCUA's interpretation of section 109 of the Federal Credit Union Act was at issue: "Federal credit union membership shall be limited to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district." 12 U.S.C. § 1759. The NCUA interpreted this statute to allow one credit union to have members of multiple unrelated employer groups, each with a different common bond of association or occupation, to join that particular credit union. NCUA, 118 S. Ct. at 930. The Court found, however, that allowing multiple unrelated groups to join one credit union rendered the term "common bond" surplusage "because each 'group' in such a credit union already had its own 'common bond.'" Id. at 939.
The Supreme Court offered a second reason that the NCUA's interpretation of section 109 was contrary to the plain meaning of the statute under the first prong of Chevron:
The NCUA's interpretation violates the established canon of construction that similar language contained within the same section of a statute must be accorded a consistent meaning. Section 109 consists of two parallel clauses: Federal credit union membership is limited "to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district." The NCUA concedes that even though the second limitation permits geographically defined credit unions to have as members more than one "group," all of the groups must come from the same "neighborhood, community, or rural district."
Id. (emphasis in original). Therefore, under the general rules of statutory construction, the parallel clause about occupational or associational "groups" must be interpreted in the same manner: one "group" per credit union. See id.
The only way this Court can see that the plaintiffs apply NCUA to this case is in the argument that if the agency's interpretation creates surplusage in the statute, the interpretation is invalid under the first step of Chevron and an examination under the deferential second step of Chevron is inappropriate. Specifically, the plaintiffs argue the FHFB's interpretation of the phrase "mortgages, obligations, or other securities" in sections 1431(h) and 1436(a) somehow reads the term "securities" out of the statute.
The Court instead reads the phrase "mortgages, obligations, or other securities . . . sold by [Freddie Mac]" in sections 1431(h) and 1436(a) to enumerate "mortgages" and "obligations" as subsets of the larger set "securities," which is to be read broadly. Mortgages and obligations are enumerated because they are the most common forms of securities sold by Freddie Mac. This interpretation is bolstered by the provision in section 1431(h) allowing investments of surplus funds in "stock, obligations, or other securities of any small business investment company," where "stocks" and "obligations" appear to be subsets of the broader set of "securities," and they are apparently enumerated because they are the most common examples of securities in this context. Therefore, when sections 1431(h) and 1436(a) refer to "such securities as fiduciary and trust funds may be invested in," such mortgages "as fiduciary and trust funds may be invested in," are included as a subset of the broad term "securities," not excluded by the fact that they are not explicitly enumerated. Under Illinois law, fiduciary and trust funds may be invested in home mortgages under Illinois' prudent investment rule. See 760 ILL. COMP. STAT. ANN. 5/5-2 (West 1998). Therefore, under the Court's reading of the plain language of sections 1431(h) and 1436(a), the FHFB's interpretation of those provisions is permissible under the first-level of Chevron analysis.
In contrast, the term "securities" is used more narrowly in the Glass-Steagall Act. See 12 U.S.C. § 24 (Seventh) (prohibiting national banks from underwriting or dealing in "securities or stock"); 12 U.S.C. § 378(a)(1) (prohibiting anyone in the business of underwriting, selling, or distributing "stocks, bonds, debentures, notes, or other securities" from accepting deposits). To be sure, the term "security" does not have "an ascertainable ordinary meaning in all contexts." Investment Co. Inst. v. Conover, 252 U.S. App. D.C. 364, 790 F.2d 925, 933 (D.C. Cir. 1986) (Starr, J.). For that reason, the defendant does not have a strong argument in citing authority that defers to an agency's interpretation that the term "securities" in the Glass-Steagall Act refers to the traditional products of securities firms such as stocks and bonds as opposed to those of the banking industry such as mortgages. See 790 F.2d at 934. Instead, Conover suggests this Court should defer to the FHFB's interpretation of the undefined term "securities" in this particular context, which is justifiably different from the definition approved with deference in the Glass-Steagall context in Conover.
Additionally, the defendant argues the challenged policies are permissible as exercises of "incidental powers" granted in section 1431(a) because they effect the functional equivalent of advances, see 12 U.S.C. § 1430, and enable the FHLBanks to "carry out their housing finance mission," 12 U.S.C. § 1422a. The defendant argues that "incidental powers" are broad. See NationsBank v. Variable Annuity Life Ins. Co., 513 U.S. 251, 115 S. Ct. 810, 815, 130 L. Ed. 2d 740 (1995) (holding that allowing customers to invest in annuities is an "incidental power" of banking); M & M Leasing Corp. v. Seattle First Nat'l Bank, 563 F.2d 1377, 1382 (9th Cir. 1977), cert. denied, 436 U.S. 956, 98 S. Ct. 3069, 57 L. Ed. 2d 1121 (1978) (holding that motor vehicle leasing is an "incidental power" to banking). Certainly, these National Bank Act cases cited by the defendant are not controlling in this FHLBank Act case, but they are persuasive on the issue of the breadth of the term "incidental powers."
Importantly, the defendant does not need to argue in this case that the incidental powers clause of the FHLBank Act gives FHLBanks extremely broad powers outside the scope of the enumerated powers granted by the FHLBank Act. Instead, as discussed above, the defendant argues FMP § II.B.12 and the Chicago program are in line with the statutory provisions for advances and investments, and the incidental powers clause merely clarifies the authority to undertake these programs that arguably already fall within the FHLBanks' explicit statutory powers. Because of the limited need (if any) of the FHFB to rely upon section 1431(a) for authority for the FMP and the Chicago program, it is clear that it is truly "incidental" to "carrying out the housing finance mission." Therefore, the plaintiffs' argument fails in asserting that the challenged programs are impermissible under section 1431(e)(1) of the FHLBank Act, which states that "no Federal Home Loan Bank shall transact any banking or other business not incidental to activities authorized by this Act."
IV. Notice & Comment Requirement
The plaintiffs further argue that the FHFB has illegally failed to observe notice and comment procedures of the APA. Additionally, they argue the defendant has violated the CWAAA. However, this Court will not consider the CWAAA, which states explicitly by its own terms, "no determination, finding, action, or omission under this chapter shall be subject to judicial review." The language could not be plainer, and therefore the defendant's alleged "omission" of review "under this chapter" is not subject to review by this Court.
The plaintiffs argue § 805 only forecloses review of any "determination, finding, action, or omission" by Congress. But the statute provides for no judicial review of any "determination, finding, action, or omission under this chapter," not "by Congress under this chapter." The Court must follow the plain English. Apparently, Congress seeks to enforce the CWAAA without the able assistance of the courts. See Peter A. Pfohl, Congressional Review of Agency Rulemaking: the 104th Congress and the Salvage Timber Directive, 14 J.L. & POL. 1, 29 (1998) (stating that "under Section 805 of the Act, any agency 'determination, finding, action, or omission' is shielded from judicial challenge" and arguing that "the CAAA's preclusion of judicial enforcement may provide an 'out' for agencies seeking relief from the CAAA requirements").
According to the APA notice and comment requirements, "general notice of proposed rule making shall be published in the Federal Register." 5 U.S.C. § 553(b). Furthermore, after this notice, "the agency shall give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without opportunity for oral presentation." 5 U.S.C. § 553(c). The defendant argues that neither of the policies at issue are subject to notice and comment requirements, however. The defendant argues persuasively that the Chicago program is the result of an adjudication by the FHFB within the meaning of the APA and therefore not subject to the notice and comment requirements as a rule. The Chicago program was proposed by the Chicago FHLBank and approved by the FHFB. Therefore, it is not a "rule" created by the FHFB, but rather an "adjudication" approving the Chicago FHLBank's proposal. Alternatively, the defendant asserts that on February 7, 1997, prior to the Chicago program's implementation, the FHFB published notice of the program in the Federal Register and notice of public hearings concerning the program. See 62 Fed. Reg. 5828 (1997). After public hearings were held on March 10, 1997 regarding the program and all testimony was considered, the FHFB gave final authorization on June 23, 1997 to the Chicago FHLBank to begin the program. Hence, the defendant suggests, even if the Chicago program were subject to notice and comment requirements, it in fact complied with them. Either way, it is clear the FHFB has not violated the notice and comment requirements of the APA with regard to the Chicago program.
The Court need not examine this point in detail, because the plaintiffs have not explained how the promulgation of the Chicago program qualifies as a "rule" subject to notice and comment requirements. In fact, the plaintiffs made no mention of the Chicago program in their notice and comment argument in their reply brief, instead focusing on the amendment to the FMP in § II.B.12, suggesting they wisely abandoned their argument that the FHFB failed to comply with notice and comment requirements regarding the Chicago program itself.
The defendant argues FMP § II.B.12 is exempt from the APA's notice and comment requirements as a procedural rule; and alternatively, that FMP § II.B.12 is exempt because it merely interprets existing regulations. FMP § II.B.12 is clearly a rule. See 12 U.S.C. § 551(4) (defining a rule as "an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency"). Nevertheless, the APA notice and comment requirements do not apply to "interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice." 12 U.S.C. § 553(b)(3)(A). The proper criteria in determining whether an agency's pronouncement or rule is a substantive as opposed to a nonsubstantive rule is whether (1) it is a binding norm that imposes rights and obligations and (2) it deprives the agency and its decisionmakers of the power to exercise discretion. Professionals & Patients for Customized Care v. Shalala, 56 F.3d 592, 595 (5th Cir. 1995). In analyzing these criteria, the Court must give some deference to the agency's characterization of its own rule. Id.
In this case, the FHFB explicitly characterizes FMP § II.B.12 as a nonsubstantive rule, and the Court accepts this characterization without the necessity of granting "overwhelming" deference. See id The FMP's policy objective is "to provide a framework within which the Federal Home Loan Banks (Banks) are allowed to implement prudent and responsible financial management strategies." FMP, part I. Part II of the FMP is entitled "Investment Guidelines," and its stated purpose is to "establish policy on the use of funds not required for credit programs or operations" and to "explicitly permit the purchase of mission-related and liquid assets." FMP, subpart II.A. Additionally, "each Bank [is] responsible for determining the extent to which its investment authority will be used to augment income from advances." Id. Subpart II.B lists twelve types of "permissible investments," with section II.B.12 ("Other investments") being the specific provision at issue in this case. Clearly, the FMP leaves a large amount of discretion to the FHLBanks and does not impose specific rights and obligations. Therefore, FMP § II.B.12 is not a substantive rule for purposes of the APA's notice and comment requirements, and the plaintiffs' APA claim fails.
See also 62 Fed. Reg. 13,146 (stating the FMP provides a framework "within which the [FHLBanks] may implement financial management strategies in a prudent and responsible manner").
V. Conclusion
The plaintiffs attack the FMP and the Chicago program by attacking them as impermissible under each of three significant provisions of the FHLBank Act: (1) the advance provision; (2) the investment provisions; and (3) the incidental powers provisions. The plaintiffs assert that none of these three provisions permit the type of home mortgage finance permitted by the FHFB under FMP § II.B.12 and the Chicago program. The defendant, in response, asserts that each of the three provisions do permit these programs. What is clear to the Court, however, is that FMP § II.B.12 and the Chicago program are clearly permissible when examined under the FHLBank Act as a whole: to the extent FMP § II.B.12 and the Chicago program promulgate financing mechanisms that do not fit within the strict definition of advances, those minor differences are allowed because they are permissible investments, and they are exercises of incidental powers. Furthermore, the FHLBank Act provides that the FHFB shall ensure that FHLBanks carry out the home financing mission. This Court must look at the statute as a whole and the intent of the drafters instead of being restricted by the literal wording of Congress in any single provision in isolation. See In re CompuAdd Corp., 137 F.3d 880, 882-83 (5th Cir. 1997) (declining to follow the plain language of a bankruptcy provision because "looking at the provisions of the whole law" suggested a different result).
Looking at the FHLBank Act as a whole, the FMP and the Chicago program are not impermissible under the Act. Therefore, the FHFB is entitled to Chevron deference, and this Court will not disturb the agency's interpretation and application of the statute. Furthermore, the plaintiffs have failed to raise fact issues on their allegations that the defendant has otherwise violated the APA, the CWAAA, or any other laws in its promulgation of FMP § II.B.12 or the Chicago program. Therefore, the defendant is entitled to summary judgment.
In accordance with the foregoing, the Court enters the following orders:
IT IS ORDERED that the pending motions to enlarge page limitations [# 40] and [# 46] are GRANTED;
IT IS FURTHER ORDERED that the Plaintiffs' Motion for Summary Judgment is DENIED;
IT IS FURTHER ORDERED that the Defendant's Motion to Dismiss or in the Alternative for Summary Judgment [# 17] is GRANTED as a summary judgment; and
IT IS FINALLY ORDERED that all other pending motions are DISMISSED AS MOOT.
SIGNED on this the 25th day of June 1998.
SAM SPARKS
UNITED STATES DISTRICT JUDGE UNITED
JUDGMENT
BE IT REMEMBERED that on the 25th day of June 1998, the Court entered its order granting summary judgment on behalf of the defendant in the above-styled cause, and thereafter enters the following judgment:
IT IS ORDERED, ADJUDGED, and DECREED that the plaintiffs, the Texas Savings and Community Bankers Association, World Savings Bank, SSB, World Savings and Loan Association, FSLA, Charter One Bank, FSB, and the Western League of Savings Institutions, TAKE NOTHING against the defendant the Federal Housing Finance Board, and that the defendant go hence without delay and with its costs, for which let execution issue against the plaintiffs.
SIGNED on this the 25th day of June 1998.
SAM SPARKS
UNITED STATES DISTRICT JUDGE