Fahey v. Mallonee
Headline: Court reverses a lower court and upholds federal power to appoint conservators for troubled savings-and-loan associations, undoing an order that removed a conservator and blocked agency hearings and mergers.
Holding: The Court reversed the three-judge district court, held Section 5(d) constitutional, and allowed federal regulators to keep a conservator in place and proceed with agency hearings.
- Allows federal regulators to appoint and keep conservators for troubled savings-and-loan associations.
- Reverses injunctions that stopped agency hearings and blocked possible mergers.
- Leaves open remedies if supervisors act maliciously or without cause.
Summary
Background
Stockholders brought a class action on behalf of the Long Beach Federal Savings and Loan Association after federal regulators, without prior notice or a trial, appointed a conservator who took possession of the association. The district court, sitting as a three-judge panel, held that Section 5(d) of the Home Owners’ Loan Act was an unconstitutional delegation of legislative power, removed the conservator, stopped an administrative hearing, enjoined a potential merger, and restored the old management.
Reasoning
The central question was whether Section 5(d) improperly gave federal regulators unlimited power to reorganize or take control of savings-and-loan institutions. The Court distinguished earlier cases that struck down delegations in novel or criminalizing contexts, noting that savings-and-loan supervision is long-established, governed by conventional standards, and involves familiar remedies like conservatorship. The Court found the rules and customary standards adequate, held Section 5(d) constitutional, reversed the district court’s invalidation and injunctions, and said the plaintiffs could not attack the statute’s core rules after accepting a charter under that law.
Real world impact
The decision lets federal supervisors continue to use summary conservatorship and follow administrative hearings in the usual banking way, rather than having courts nullify those moves in the absence of a full record. It reverses the lower court’s removal of the conservator and its freeze on agency actions in this case. The Court also left open that courts may provide remedies if supervisors act maliciously or entirely without cause.
Dissents or concurrances
Justice Douglas joined only the result. Justice Rutledge agreed with the result and with the opinion so far as it rests on Section 5(d) being constitutional.
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