United Wire, Metal & MacHine Health & Welfare Fund v. State of Maryland Deposit Insurance Fund

RODOWSKY, Judge. Old Court Savings & Loan, Inc. (Old Court) is an insolvent corporation which is in liquidating receivership. Appellants had challenged the Governor’s General Distribution Plan for Old Court depositors (the Plan). By a mandate issued on April 17, 1986, with opinion to follow, this Court affirmed a circuit court order which rejected appellants’ challenge.

We now state our reasons underlying that mandate. This case grows out of the emergency in this State created by the financial failures in the spring of 1985 of some of the largest Maryland chartered savings and loan associations. The general background is described in W. Preston, Report of the Special Counsel on the Savings & Loan Crisis (1986) and in Chevy Chase Savings & Loan, Inc. v. State, 306 Md. 384, 387-97 , 509 A.2d 670, 672-75 (1986). Those failures also rendered insolvent the private insurer of state-chartered associations, Maryland Savings-Share Insurance Corporation (MSSIC).

At a special session of the Maryland General Assembly convened that spring, MSSIC was merged into a new state agency, created within the Department of Licensing and Regulation, the State of Maryland Deposit Insurance Fund Corporation (MDIF). MDIF assumed MSSIC’s role as insurer of depositors’ accounts. That obligation is, in general, to pay the net loss on a depositor’s account in an insolvent association, determined after liquidation has been completed. In May of 1985 Old Court had been placed in conservator-ship under the jurisdiction of the Circuit Court for Baltimore City which imposed a moratorium on withdrawals by depositors.

Subsequently, limited withdrawals were permitted for certain emergency obligations of depositors. Fol ¹⁵² lowing the conservatorship, losses in Old Court had been consistently estimated to exceed $200 million and the association was beyond hope of rehabilitation. In November the circuit court ordered Old Court into a liquidating receivership of which MDIF is the receiver. Restrictions on withdrawals were continued.

There are 34,497 Old Court depositors whose accounts total approximately $600 million. On January 10, 1986, the Administration’s Savings and Loan Financing Plan was announced. It dealt with five financially troubled associations, including Old Court. It presented a general financial plan for implementing the various strategies proposed for different associations.

The general financial plan contemplated using $80 million in MDIF insurance fund liquid assets, the $70 million balance of a 1985 bond authorization, $100 million in interfund borrowing by MDIF from the Transportation Trust Fund, and $70 million in general fund appropriations, of which $55 million were to be a FY 1986 deficiency appropriation. As to Old Court the financing plan proposed that during calendar year 1986 MDIF would “provide for advance insurance payments of approximately $100 million, or 50 percent of the expected insurance losses.” It was further stated that “[t]he advance funding program will also cash out small accounts.” The details of a distribution of State funds to Old Court depositors set forth in the Plan with which this case is concerned evolved from the January general financing plan. On March 3,1986, MDIF, in its capacity as receiver of Old Court, moved that the circuit court authorize the receiver “to take such steps as the Receiver deems reasonably necessary in order to facilitate implementation of the [P]lan____” The features of the Plan with which we are concerned are: —Each depositor with an aggregate deposit balance of less than $100 will receive payment in full from the State. —Each depositor with an aggregate deposit balance between $100 and $5,000 will receive an interest-bearing transaction account at Maryland National Bank with a ¹⁵³ deposit balance equal to that depositor’s former Old Court accounts. —Each depositor with an aggregate deposit balance exceeding $5,000 will receive $5,000 from the State. —Each depositor with an Individual Retirement Account (IRA) balance of $100,000 or less will receive an interest-bearing IRA at Maryland National Bank with a deposit balance equal to that depositor’s former Old Court IRA. MDIF’s motion represented that in order to fund the Plan the Governor was arranging for the transfer of $100 million from the Transportation Trust Fund to a special State fund created for the purpose of receiving and distributing monies from the Transportation Trust Fund.

It further represented that additional funds required for the Plan beyond that $100 million would be provided either from appropriations in the FY 1987 budget or from MDIF’s insurance fund. The receiver’s motion told the court that “[n]o Old Court assets, nor any funds generated from the sale of any Old Court assets, will be used by the State or MDIF to fund any part of the [Plan].” Among the depositors at Old Court are United Wire, Metal and Machine Health and Welfare Fund and United Wire, Metal and Machine Pension Fund (the Funds). Their deposits in Old Court total approximately $16 million. In connection with earlier proceedings in the conservator-ship/receivership of Old Court, the circuit court had granted the Funds full intervenor status.

The Funds opposed the receiver’s motion. Their object was to force a pro rata distribution, at least indirectly, by thwarting the utilization of receivership assets in administering the State funds to be disbursed pursuant to the Plan. Basically the Funds asserted that the circuit court could not authorize the receiver to proceed as the motion had requested because the disparate treatment of depositors under the Plan violated the rule of pro rata distribution and was state action which deprived the Funds of equal protection. ¹⁵⁴ The court conducted a hearing at which counsel were heard but at which no testimony was taken. The circuit court found that the Plan did not involve a distribution of Old Court assets.

It further found that the accounts of some 17,000 depositors in Old Court would be fully paid by the distribution called for in the Plan and that eliminating those depositors from further participation in the receivership would reduce the costs of administering the receivership as to the remaining depositors who would not have been paid in full. The court entered an order authorizing the receiver to proceed as requested and the Funds appealed from that order. We granted certiorari before consideration of the appeal by the Court of Special Appeals. The Funds contend that the circuit court erred because it permitted the receiver to participate in implementing a plan which “would fundamentally alter the nature of risks shared by co-equal depositors” in Old Court.

This argument rests on the common law principle recognized in Wyman v. McKeever, 239 Md. 130, 133 , 210 A.2d 537, 539 (1965), namely: The general rule, now firmly established by the great majority of the cases on the subject, is that after a building association has become insolvent in fact, even though this is not known, the right of every shareholder to equality in the distribution attaches as a paramount equity and no shareholder has the right to defeat that equality by withdrawing, perfecting an incompleted attempt to withdraw, or retaining the fruits of a completed withdrawal. Insofar as a distribution in liquidation of the assets of an insolvent Maryland chartered savings and loan association is concerned, the principle of equality is now embodied in a statute and means a pro rata distribution. 1 The distribution ¹⁵⁵ under the Plan is not, however, a distribution of the assets of Old Court in liquidation.* 2 The circuit court so found as a fact and the Funds do not contend otherwise. If a rule of pro rata distribution is to be applied to the Plan, it must rest on some other basis. But it is also clear that the principle of equality of treatment extends beyond the distribution of assets of an insolvent savings and loan association.

We have recently analogized to Wyman v. McKeever, supra, in rejecting the attempted withdrawal by a former MSSIC member association after the insolvency of MSSIC of that member’s capital contributions to the MSSIC fund used to insure depositor’s accounts. See Chevy Chase Savings & Loan, Inc. v. State, supra. The Funds also refer to the assumption by MDIF of the MSSIC insurance obligations. Appellants say that “[t]he unfortunate reality is that the State must supplement the [MDIF] insurance fund, or renege on [the State’s] insurance obligation.” The Funds call the State’s financing of the Plan “a partial—but perhaps the State’s only—contribution to fulfill this pledge.” Because only those Old Court depositors whose accounts are not paid in full under the Plan bear the risk that the State will not “fulfill this pledge,” the Funds say the rule of pro rata treatment is violated.

This spin on the pro rata argument views distribution under the Plan as the economic equivalent of an advance ¹⁵⁶ payment of insurance on deposits by MDIF. If we assume, arguendo, that such is the correct legal characterization of the payments under the Plan, the rule of pro rata treatment would still not apply. Section 10-110.1(c) of the Financial Institutions Article (FI), enacted by Ch. 12 of the Acts of 1986 on an emergency basis and effective April 3, 1986, provides in relevant part as follows: (c) Subject to any other conditions established under law, if the Fund Director is reasonably satisfied that an insurable loss will be incurred upon final liquidation, in order to facilitate the payment of deposit insurance to depositors of a member association and to reasonably reduce the administrative costs of a liquidation, including demands on any hardship withdrawal plan, the Fund may, either upon final liquidation or earlier, and either from available monies in the Fund or from any other State funds advanced to the Fund for that purpose: (2) Make a cash payment or payments, in an amount equal to all or- any portion of the depositors’ savings accounts, to any or all of the depositors of a member association in receivership[.] [Emphasis added.] This statute abolishes any common law rule of pro rata distribution which might otherwise have been applicable to payment of MDIF insurance made in advance of determining the net loss on a depositor’s account after ultimate liquidation of the insolvent association, whether the monies paid were available in the MDIF insurance fund or whether the State advanced the monies to the insurance fund. Although Ch. 12 was not in effect at the time the circuit court entered the order appealed from, an appellate court ordinarily applies the law in effect at the time the case is decided.

See Pickett v. Prince George’s County, 291 Md. 648, 662 , 436 A.2d 449, 457 (1981); Mraz v. County Commissioners, 291 Md. 81 , 433 A.2d 771 (1981); and McClain v. State, 288 Md. 456 , 419 A.2d 369 (1980). ¹⁵⁷ If, on the other hand, the payment by the State to Old Court depositors pursuant to the Plan is not, in legal effect, an advance payment on MDIF’s insurance obligation, then, under the parties’ arguments, the Plan distribution would be