United Wire, Metal & MacHine Health & Welfare Fund v. Board of Savings & Loan Ass'n Commissioners

²³⁸ RODOWSKY, Judge. In this appeal we hold that the Circuit Court for Baltimore City did not abuse its discretion in approving the release by the receiver of Old Court Savings and Loan, Inc. (Old Court) of former officers and directors of Maryland Savings-Share Insurance Corporation (MSSIC) as part of the settlement of an action brought against those releasees by MSSIC’s successor, a Maryland governmental corporation. This appeal is another case arising out of the 1985 savings and loan crisis in Maryland. The development of the crisis is described in detail in W. Preston, Report of the Special Counsel on the Savings & Loan Crisis (1986).

Aspects of the response by the State of Maryland to the crisis may be found in Md.Code (1980, 1986 Repl.Vol., 1988 Cum.Supp.), §§ 9-701 through -712 of the Financial Institutions Article (FI), relating to receiverships and conservator-ships of state chartered savings and loan associations, and in FI §§ 10-101 through -121, relating to State of Maryland Deposit Insurance Fund Corporation (MDIF), a state agency in the Department of Licensing and Regulation. FI § 10-102. Aspects of the State’s response to the crisis have also been described in State v. Hogg, 311 Md. 446 , 535 A.2d 923 (1988); United Wire, Metal & Machine Health & Welfare Fund v. State Deposit Ins. Fund, 307 Md. 148 , 512 A.2d 1047 (1986) (United Wire I); and Chevy Chase Savings & Loan v. State, 306 Md. 384 , 509 A.2d 670 (1986).

Understanding the issue presented here requires briefly presenting some of these aspects. In the spring of 1985 a number of savings and loan associations, including Old Court, failed. These failures in turn caused the failure of MSSIC, the private insurer of deposits in state chartered savings and loans. The State created MDIF and merged MSSIC into MDIF.

See Acts of the First Special Session of 1985, Ch. 6, § 4 (uncodified). The statutory merger expressly included the transfer to MDIF of all of the assets and all of the liabilities, including insurance liabilities, of MSSIC. Id. MDIF is also the ²³⁹ receiver for Old Court and is receiver for other insolvent associations.

The Director of MDIF administers a special, nonlapsing fund (the Insurance Fund), one of the purposes of which is “[reimbursing savings account holders for loss incurred upon liquidation of a member association, up to the amount of insurance on any savings account).]” FI § 10-110(a)(2)(iii). Old Court and other associations in receivership at which accounts were previously insured by MSSIC are “member association^]” for purposes of the Insurance Fund. See Acts of the First Special Session of 1985, Ch. 6, § 5 (uncodified). Underlying the case presently before us is a controversy over the amount of insurance reimbursement to be made where large amounts are on deposit to the credit of one depositor.

The amount of MDIF insurable loss is determined “[u]pon final liquidation of a member association,” at which time MDIF’s Director is to “[m]ake provision for the payment or assumption of any insurable loss to each depositor less any payments made” in advance of final liquidation. FI § 10-110.1(a). Advance payment of MDIF’s insurance liability is authorized by FI § 10-110.1(c). 1 ²⁴⁰ In order to fund some partial distribution to depositors prior to the complete liquidation of insolvent associations' assets, and prior to the precise determination of the insurable loss, public moneys have been transferred to MDIF with which to make advance payments on its insurance liability. See United Wire I, 307 Md. at 152 , 512 A.2d at 1049 ; Department of Fiscal Services, Analysis of State Liability for Savings and Loan Obligation (1st ed.

Jan. 22, 1986); Administration’s Savings and Loan Financing Plan (Jan. 10, 1986). This use of public moneys conforms with the policy declared by the General Assembly “that funds will be appropriated to [MDIF] to the extent necessary to protect holders of savings accounts in membership associations, and to enable [MDIF] to meet its obligations under a hardship withdrawal plan or partial distribution of assets.” FI § 10-116. A quid pro quo for the use of public moneys is the priority in favor of the State established by FI § 10-120(b)(3) which in part provides: “[I]n any action of [MDIF] as insurer, subrogee, conservator, or receiver against a shareholder, director, officer, employee, agent, or other person contributing to a loss at a member association____ “(3) All moneys recovered by [MDIF] as insurer or subrogee shall be first applied to repay any monetary advance by the State to [MDIF]____ Moneys so recovered shall be placed in a separate account and transferred to the General Fund of the State.” In the Old Court receivership, the circuit court authorized at least one distribution plan, that which was before us in United Wire I, 307 Md. at 152-53 , 512 A.2d at 1049 . That partial distribution utilized “ ‘advance insurance payments of approximately $100 million[.]' ” Id. at 152 , 512 A.2d at 1049 .

The State has also been endeavoring to liquidate former MSSIC assets and the assets of insolvent associations. One ²⁴¹ of the assets is a claim against MSSIC’s former officers and directors acquired by MDIF in the MSSIC merger. That litigation, one aspect of which was appealed to this Court in State v. Hogg, 311 Md. 446 , 535 A.2d 923 (1988), was ultimately settled for a $16 million payment to MDIF, in its capacity as insurer, and for an exchange of releases, including releases by MDIF in its various receiver capacities, including that as receiver of Old Court. The mutual release requirement of the Hogg settlement agreement in part provided: “MDIF in its capacity as receiver or conservator of any MSSIC-insured savings and loan institution shall promptly take all steps to obtain court approvals necessary to the effectiveness of the provisions of this Agreement and to the release of MDIF’s claims in such capacities, as provided in the Mutual Releases.

In the event any such court declines to approve this agreement and/or the Mutual Releases on the terms and conditions contained herein, this Agreement is null and void.” The appellants herein, United Wire, Metal & Machine Health & Welfare Fund and United Wire, Metal & Machine Pension Fund (collectively, United Wire), are holders of savings accounts in Old Court. MDIF’s position is that some $6.5 million of United Wire’s deposits in Old Court are uninsured, a position which is the subject of other litigation. In the instant matter appellants pursue a complementary strategy, that of attempting to increase the amounts realized on assets of Old Court. When MDIF, as receiver for Old Court, applied for circuit court approval of Old Court’s furnishing the release which the Hogg settlement agreement contemplated, United Wire opposed approval.

Appellants contended that the claim against the Hogg defendants was properly that of Old Court, and not of MDIF as insurer. If the recovery from the Hogg defendants is considered as an Old Court asset, appellants submitted that the recovery should be included in a pro rata distribution to Old Court depositors based on the total amount of their respective claims, determined by both insured and any uninsured por ²⁴² tions of a given depositor’s account or accounts. On the other hand, treating the Hogg recovery as an asset of MDIF, as insurer, means the settlement funds will be applied against MDIF’s insurance liability. That application excludes United Wire’s deposits from participation in the Hogg recovery to the extent, if any, that those deposits are uninsured.

The circuit court approved participation by the Old Court receiver in the Hogg settlement, and United Wire filed an order of appeal to the Court of Special Appeals. That order was clerically processed as an appeal to the Court of Special Appeals and this Court, on its own motion, issued the writ of certiorari to the intermediate appellate court before its consideration of the merits. 2 United Wire argues that the Hogg settlement cannot be in the best interest of the Old Court receivership because the receivership gave up its claim but received nothing in return. Appellants submit that, if they are correct that Old Court had a claim against the former officers and directors of MSSIC, then it inexorably follows that the settlement, under which the $16 million recovery is paid into the Insur ²⁴³ anee Fund or to the General Fund of the State, cannot be in the best interest of the Old Court receivership. We need not, however, determine the validity of appellants’ premise because we do not agree that the only conclusion flowing from their premise is that the settlement must be disapproved.

Evaluation of the proposed settlement required weighing many factors. Some of the principal ones we now review. State v. Hogg, 311 Md. at 452-53 , 535 A.2d at 926 , identified the claim asserted there as one by MDIF in its capacity as insurer. “The theory of the suit, which sounds in negligence and in breach of fiduciary duties, is that the defendants violated duties owed to MSSIC and that MSSIC’s rights arising out of those violations were acquired by MDIF in the merger.... It alleges that the defendants failed to utilize their power and positions to correct unsafe and unsound practices of member associations.

Subdivisions of that pleading present more particular allegations concerning First Progressive and Old Court, Merritt Commercial, First Maryland, and Community savings and loan associations.” The complaint in Hogg was filed August 1, 1986. Essentially appellants complain now, by opposing approval of the settlement, that the Hogg suit was brought by the wrong plaintiff, ie., MSSIC’s successor as opposed to Old Court’s receiver, and on the wrong theory. The amended complaint claimed against twenty-six defendants and its forty-seven pages identified in specific associations specific transactions by specific fiduciaries which caused losses to MSSIC, losses which the Hogg defendants allegedly should have prevented or reduced. We may fairly assume that the issues generated by those allegations were the subject of discovery appropriate to a case which eventually settled for $16 million.

There was also an appeal to this Court. The settlement agreement for the Hogg litigation is dated March 10, 1988. After that settlement was reached the appellants contended that MDIF had been riding the wrong horse down the ²⁴⁴ wrong road for some nineteen months. Thus, the factor of laches, if not estoppel, operates against appellants and in favor of approving the settlement.

United Wire argues that MDIF, as receiver, had substantially the same causes of action against the Hogg defendants as did MDIF, as insurer. Appellants cite no legal authority for that proposition. Instead, they select from MDIF’s complaint in the Hogg case portions of the allegations, e.g., “[defendants breached their duty to act in good faith, to exercise their power and authority in the best interest of MSSIC and to protect the savings