source: Caselaw Access Project

author: FORRESTER, District Judge.

license: Public Domain

text:
    Ronald W. GOERKE, Individually and on Behalf of All Those Similarly Situated, Plaintiffs, v. COMMERCIAL CONTRACTORS & SUPPLY COMPANY, INC., d/b/a Dobbs Industries, Defendant.
    Civ. A. No. C84-339A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Dec. 6, 1984.

      Michael D. Goodman, Atlanta, Ga., for plaintiffs.
    E. Lewis Hansen, Hurt, Richardson, Garner, Todd & Cadenhead, Atlanta, Ga., for defendant.
   ORDER

FORRESTER, District Judge.

A. FACTS AND PROCEDURAL POSTURE.

The complaint in this case, filed on February 21, 1984, alleges that the defendant failed to pay the plaintiff overtime compensation as required by the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201, et seq. Paragraph 10 of the complaint alleges that there are other employees of the defendant, similarly situated, to whom the defendant also owes overtime compensation under the FLSA. That paragraph further alleges:

The actual records concerning the number of excess hours worked by each similarly situated employee is in the exclusive possession and control of the Defendant, and Plaintiff is unable to state at this time the exact amount owing to each of them. Plaintiffs propose to obtain such information by appropriate discovery proceedings.

Paragraph 10, Complaint. Paragraph 12 of the complaint prays that plaintiff be permitted to circulate a “Court approved Notice of Action to other employees similarly situated.” Pursuant to paragraph 12 of the complaint, plaintiff moved on September 26, 1984, that this court “certify a class” and approve the issuance of a notice to other employees of the defendant whom plaintiff alleges to be similarly situated to the plaintiff. This motion was brought pursuant to 29 U.S.C. § 216(b).

The defendant has opposed the motion that this court approve the issuance of a notice on the grounds that an action under the Fair Labor Standards Act is not a typical class action, and no court involvement such as authorizing notice is necessary or permitted by the statute. This court, having reviewed the provisions of section 216(b) of the FLSA, its legislative history, and the decisions of the courts which have ruled on this question, has concluded that plaintiff’s motion that this court approve either the form of a notice or the circulation of. said notice to other potential plaintiffs should be denied.

B. SECTION 216(b) OF THE FLSA.

Section 216(b) of the Fair Labor Standards Act, pursuant to which plaintiff seeks to have this court authorize notice to potential plaintiffs, provides in pertinent part as follows:

Any employer who violates the provisions of section 206 or section 207 of this title shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. An action to recover such liability may be maintained in any court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought. The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.

The statute thus permits bringing of an action to enforce Fair Labor Standards Act requirements by an employee on behalf of other employees similarly situated, but said other employees are not considered to have become parties to the action unless they have “opted-in” by an affirmative consent filed with the court.

The legislative history of this provision of the FLSA is found as part of what was originally termed the Portal-to-Portal Act of 1947. [1947] U.S.Code Cong. Service, 1029-36. The Portal-to-Portal Act of 1947 was passed as a direct response to the decision of the Supreme Court in Anderson vs. Mt. Clemens Pottery Company, 328 U.S. 680, 66 S.Ct. 1187, 90 L.Ed. 1515 (1946). In Anderson, the Supreme Court held that time spent by employees getting to their jobs, and getting from their jobs to their homes was time which must be compensated under the FLSA. As a result of this holding by the Supreme Court, literally thousands of cases were filed seeking compensation under the formula laid out in that case. 1947 U.S.Code Cong. Service, at 1031. The provisions of 216(b) were enacted as part of Congress’ response to this flood of litigation. The legislative history describes the kind of litigation which was proceeding following the decision in Anderson as follows:

The procedure in these suits follows a general pattern. A petition is filed under 16(b) by one or two employees in behalf of many others. To this is attached interrogatories calling upon the employer to furnish specific information regarding each employee during the entire period of employment. The furnishing of this data alone is a tremendous financial burden to the employer.

Id. at 1032.

The Tenth Circuit Court of Appeals has recently reviewed the legislative history of section 216(b), and has held that the opt-in language of that section “... was a direct result of ... clear congressional dissatisfaction with the original class action provisions of the FLSA. In fact, the relevant language of section 216(b) was entitled ‘Representative Actions Banned’ in the Portal-to-Portal Act." Dolan vs. Project Construction Corporation, 725 F.2d 1263, 1267 (10th Cir.1984).

C. THE NOTICE QUESTION.

As is apparent from the foregoing discussion, the actual language of the statute in question is silent on the issue of whether potential plaintiffs (i.e., those individuals who are similarly situated to the named plaintiff) should be given notice of the pending action, whether by plaintiff, plaintiffs counsel, or by the court. It is settled in the Eleventh Circuit, however, that any power in this court to approve or authorize such notice must be inferred from statutory interpretation. Haynes vs. Singer Company, Inc., 696 F.2d 884, 886 (11th Cir.1983).

Four courts of appeal have reached the question of whether a district court is empowered to authorize notice under the statute, while two others have reserved the question. The Ninth Circuit Court of Appeals, in Kinney Shoe Corporation v. Vorhes, 564 F.2d 859 (9th Cir. 1977), concluded that neither plaintiff, plaintiffs counsel, nor the court is permitted to circulate notice to potential plaintiffs in a § 216(b) action. The Second Circuit, in Braunstein v. Eastern Photographic Laboratories, Inc., 600 F.2d 335 (2d Cir. 1978), concluded that nothing in the Act prohibited the court’s approval of such notice, and permitted the court to authorize the distribution of such notice “in appropriate cases.” Treading a middle ground, the Seventh Circuit, in Woods v. New York Life Insurance Company, 686 F.2d 578 (7th Cir.1982), concluded that the district court had the power to regulate the content and distribution of the notice to potential plaintiffs, but that the notice could not bear any indicia of “apparent judicial sponsorship of the notice.” Id. at 580-81. Finally, the Tenth Circuit in Dolan, supra, concluded that nothing in the Fair Labor Standards Act permitted the court to authorize notice in any way, but that under current Supreme Court authority regarding client solicitation and attorney contact with potential clients, plaintiff’s counsel could engage in such communication with potential plaintiffs as does not run afoul of the standards set by the Supreme Court in such cases as In Re Primus, 436 U.S. 412, 98 S.Ct. 1893, 56 L.Ed.2d 417 (1978), and Gulf Oil Company v. Bernard, 452 U.S. 89, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981). The Eleventh Circuit Court of Appeals and the Court of Appeals for the District of Columbia have both reserved the question of whether a district court is authorized to issue notice under section 216(b). See Haynes v. Singer Company, supra; Thompson v. Sawyer, 678 F.2d 257, 270 n. 8 (D.C.Cir.1982).

This court has reviewed all the cases discussed above, as well as the numerous district court cases which are approximately evenly split on the question of whether notice may be authorized by the district court, and has concluded that there is no legal justification in the statute for this court’s taking an active role in the giving of notice, as requested by the plaintiff here.

The usual context in which the issue of court-approved notice arises is in a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure. See, e.g., Rule 23(c)(2). A section 216(b) action, however, often referred to as a “spurious” class action, stands on entirely different footing from a Rule 23 class action. The Fifth Circuit Court of Appeals addressed the distinctions between Rule 23 and 216(b) at great length in LaChapelle v. Owens-Illinois, 513 F.2d 286 (5th Cir.1975). The holding of LaChapelle was that 216(b) precludes a Rule 23 class action in an FLSA lawsuit. Id. at 288. The primary distinction between Rule 23 and 216(b) is that class members in a Rule 23 class action will be bound by any judgment, unless they opt out of the action. In a 216(b) action, however, the only manner in which an individual will be bound is if he or she affirmatively chooses to opt into the action. Because of the res judicata and claim-preclusive effects of a Rule 23 class action, court involvement is necessary to assure that the due process rights of class members are protected. Dolan, 725 F.2d at 1266. No such due process rationale supports court involvement in notice in a 216(b) action. Id.; Kinney, 564 F.2d at 863. As the Eleventh Circuit has recognized, because due process does not require court approval or involvement in the issuance of a 216(b) notice, any authorization for court involvement must come from the statute itself. Haynes, 696 F.2d at 886.

The Tenth Circuit in Dolan, as noted above, concluded that there was no support either in the statute or in its legislative history for the proposition that district courts are authorized to issue notice of a pending action under 216(b). To the contrary, Congress intended to permit the bringing of a representative action, but intended to limit severely the court’s involvement in such actions. 725 F.2d at 1267. This court agrees and incorporates herein the rationale of Dolan on this issue.

The circuit which is most often cited for the proposition that courts are authorized to issue notice in a 216(b) action is the Second Circuit, in its decision in Braunstein, supra. This court finds the Second Circuit’s rationale in Braunstein unpersuasive. That decision essentially predicated its determination that the district court was empowered to authorize notice on two grounds. First, the court held that:

Although one might read the Act, by deliberate omission, as not providing for notice, we hold that it makes more sense, in light of the “opt-in” provision of section 16(b) of the Act, 29 U.S.C. § 216(b), to read the statute as permitting, rather than prohibiting, notice in an appropriate case. ... Although we agree with Judge Choy’s view in Kinney that due process does not require notice, we do not agree with his conclusion that there is no power in the district court to order it in a proper case.

The second rationale of Braunstein was that the court’s holding comported with the remedial purpose of the FLSA, and the interest in the courts of avoiding a multiplicity of lawsuits. Id. at 336. The court summarized the second ground of its rationale by stating that the danger of “stirring up litigation” is no longer as compelling as it once was in view of the Supreme Court’s recent holdings in cases involving lawyer solicitation. This court finds neither of the rationales put forward by the Braunstein court to be persuasive. Braunstein rests upon the principle that notice to potential plaintiffs is a good idea. Nowhere in that opinion, however, does the court put forward any rationale for why this notice should come from the court. One of Congress’ goals in passing the Portal-to-Portal Act, as noted by the Tenth Circuit in Dolan, was to restrict the involvement of the courts, and to define and limit the court’s jurisdiction. 725 F.2d at 1267.

Under no theory of legal communication is the court justified in undertaking an active role in either discovering or contacting additional parties. The role of the court in section 216(b) actions is one of administering and monitoring the litigation process to insure a fair trial for all parties.

725 F.2d at 1268-69. As the Seventh Circuit noted in Woods, supra, there is simply no authority or rationale which would support the proposition that a federal judge has the authority to issue invitations to join a lawsuit. 686 F.2d at 581. Such activity,

changes the character of the judge from that of an adjudicator of disputes brought to him to that of a kind of town crier, ringing the tocsin to awaken those who may be sleeping on their rights; and we should require more than the generalities of Rule 83 (of the Federal Rules of Civil Procedure) or of the All-Writs Act, 28 U.S.Code § 1651, to conclude that a federal judge, whose authority is confined by Article III of the Constitution to the exercise of the judicial power of the United States, may communicate with non-parties in this way [by adding the court’s signature or other indicia of court approval].

686 F.2d at 581-82 (emphasis in original). This court therefore concludes that it has no power to draft a notice in the present case, to approve a proposed notice, or to permit the sending of a notice which contains in any way any indication that this court has approved such notice or has approved of the bringing of this lawsuit.

The court’s conclusion is borne out by the rationales presented by the plaintiff in support of the motion for court authorization of notice. The plaintiff in the present ease has provided four reasons why this court should authorize the sending of “court-approved notice.” These are: (1) Persons cannot effectively exercise their statutory right to join the lawsuit if they do not know of the suit; (2) notice would avoid a multiplicity of lawsuits; (3) claims of employees who do not receive notice may be barred by the applicable statute of limitations; and (4) “the giving of a court approved notice is preferable to counsel for the plaintiff seeking new claims in violation of the ethical canons of the State Bar of Georgia and rules of this Court.” (Spelling corrected). Brief in Support of Motion for Class Certification, at 3-4. As noted above, none of the first three rationales provide any compelling reason for court involvement in the giving of notice; rather, they merely support the utility of notice being given. With respect to the fourth rationale, plaintiff’s fear that any notice sent by plaintiff or plaintiff’s counsel could contravene the rules of the State Bar of Georgia, this court concludes that under the guidelines expressed by the Supreme Court, as discussed ante, the plaintiff has adequate protection as long as any notice sent by the plaintiff or plaintiff’s counsel is drafted to conform to those standards.

For the reasons given above, and particularly based on the rationale of the Tenth Circuit in Dolan, supra, plaintiffs motion is DENIED. The denial of this motion, however, does not preclude the plaintiff engaging in protected communication with other potential plaintiffs who can be discovered without intervention by the court. As the court in Dolan noted, recent Supreme Court decisions regarding legal communication would allow reasonable communication by the plaintiff and his counsel “... with those parties he can discover without judicial assistance.” 725 F.2d at 1268. As the Supreme Court has held in Gulf Oil Company vs. Bernard, an order limiting communications between parties and potential class members “should be based on a clear record and specific findings that reflect a weighing of the need for limitation and the potential interference with the rights of the parties.” 452 U.S. 89, 101, 101 S.Ct. 2193, 2200. There is no question that Bernard dealt with a Rule 23 class action, and was based upon the standards of the Federal Rules of Civil Procedure. However, the Tenth Circuit held in Dolan that the rationale behind Bernard was equally applicable to a representative action under 216(b). 725 F.2d at 1268. Thus, although this court has found that it has no power to approve and authorize the dissemination of a notice to potential class members, there are forms of protected communication in which plaintiffs counsel can engage with potential class members. As regards plaintiff’s fears, expressed in the brief in support of this motion, plaintiff need only make certain that any communications in which he engages are directed toward the provision of notice, rather than toward active solicitation of individuals to join in the present litigation. Id. at 1268.

D. CONCLUSION.

The court concludes that plaintiff’s motion for a court approved notice to potential plaintiffs should be DENIED. This court has no power under section 216(b) to authorize such notice. Neither the statutory language nor its legislative history provide any foundation on which this court could conclude that such power exists. This holding, of course, does not preclude plaintiff’s counsel engaging in communication with potential plaintiffs, provided, however, that any such communication comports with the standards propounded by the United States Supreme Court.

      . Since no proposed notice was attached to the motion, the court assumes that plaintiff seeks to have this court generate and distribute the “court-approved notice" plaintiff requests.

      . The complaint in the present case reveals that the plaintiff is requesting that this court provide the kind of discovery which is exactly the evil at which Congress aimed the Portal-to-Portal Act of 1947. Specifically, paragraph 10 of the complaint alleges that plaintiff will obtain information with respect to hours and amounts allegedly owing to other potential plaintiffs via discovery. As noted above, the legislative history of the Portal-to-Portal Act, if it indicates nothing else, indicates that Congress intended to prevent burdensome discovery with respect to each employee of the defendant, such as that sought by the plaintiff in the present case.

      . The Seventh Circuit Court of Appeals has viewed this same language as not having been intended to restrict class actions under the Fair Labor Standards Act. Woods vs. New York Life Insurance Company, 686 F.2d 578, 581 (7th Cir.1982). This court finds the Dolan court's discussion of the legislative history of this Act to be far more persuasive and grounded in the actual language employed by Congress. Dolan expressly rejected the Woods rationale on this point. 725 F.2d at 1267, n. 3.

      . District court cases which have authorized the distribution of notice, with court approval, include: Lusardi vs. Xerox Corporation, 99 F.R.D. 89 (D.N.J.1983); Johnson vs. American Airlines, Inc., 531 F.Supp. 957 (N.D.Tex.1982); Allen vs. Marshall Field & Company, 93 F.R.D. 438 (N.D.Ill.1982); Monroe vs. United Airlines, 90 F.R.D. 638 (N.D.Ill.1981); Frank vs. Capital Cities Communications, 88 F.R.D. 674 (N.D.N.Y.1981); Soler vs. G & U, Inc., 86 F.R.D. 524 (S.D.N.Y.1980); and Riojas vs. Seal Produce, Inc., 82 F.R.D. 613 (S.D.Tex.1979). District court cases which have held that the court is not empowered to authorize the distribution of notice include: Baker vs. Michie Company, 93 F.R.D. 494 (W.D.Va.1982); Montalto vs. Morgan Guaranty Trust Company, 83 F.R.D. 150 (S.D.N.Y.1979); Hill vs. Western Electric Company, 76 F.R.D. 4 (M.D.N.C.1976); McGinley vs. Burroughs Corporation, 407 F.Supp. 903 (E.D.Pa.1975); and Roshto vs. Chrysler Corporation, 67 F.R.D. 28 (E.D.La.1975). One district court has adopted the middle ground later suggested in Dolan vs. Project Construction Corporation. In Hallas vs. Western Electric Company, 26 E.P.D. ¶ 31,958 (S.D.Ohio 1981), the court held that it would not authorize notice, but did permit consultation between plaintiffs counsel and putative plaintiffs. In Behr v. Drake Hotel, 586 F.Supp. 427 (N.D.Ill.1984), the district court held, based on Woods, that it would approve the notice but the notice could not bear any indicia of court sanction.
      Several of those cases involve actions under the Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq. ("ADEA"), which incorporates by reference the provisions of 216(b). 29 U.S.C. § 626(b). There is no distinction made between notice in an ADEA § 216(b) case and notice in a FLSA § 216(b) case. See Johnson vs. American Airlines, supra, and Frank vs. Capital Cities Communications, supra.

      . The Woods court permitted the judge to approve the content of the notice as long as the notice when sent did not imply court sanctioning in any way. This is a distinction without a difference. While a notice signed by the court might appear to the recipient to carry more legitimacy than one without such indicia, the fact remains that court review and approval of a proposed notice in any manner constitutes judicial involvement in the notice process. The Dolan court’s prohibition of all judicial involvement appears more in line with Congress' intent in enacting this statute.

      . By referring to the United States Supreme Court standards, the court is incorporating by reference the Supreme Court’s decisions in In Re Primus, 436 U.S. 412, 98 S.Ct. 1893, 56 L.Ed.2d 417 (1978); Ohralik vs. Ohio State Bar Association, 436 U.S. 447, 98 S.Ct. 1912, 56 L.Ed.2d 444 (1978); Friedman vs. Rogers, 440 U.S. 1, 99 S.Ct. 887, 59 L.Ed.2d 100 (1979); Gulf Oil Company vs. Bernard, 452 U.S. 89, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981); and In Re R.M.J., 455 U.S. 191, 102 S.Ct. 929, 71 L.Ed.2d 64 (1982).

      . Even were this court to conclude that it had the power to authorize notice to potential plaintiffs, the court is far from convinced that the plaintiff has shown that notice would be appropriate in this case. As the Eleventh Circuit held in Haynes vs. Singer Company, the burden of proof is on plaintiff to demonstrate a reasonable basis for crediting his assertion that aggrieved individuals exist in the class which he identifies. 696 F.2d at 887. The complaint in the present case contains the naked allegation that the 70 individuals listed in the attachment to the complaint are similarly situated to the plaintiff. An affidavit from the plaintiff avers that but for 16 of those individuals, the remainder were construction or re-construction workers, as was plaintiff. However, there is nothing in the record from which this court could infer that these individuals and the plaintiff were similarly situated in the sense of duties, wages, hours, length of employment, and numerous other factors which are obviously relevant on the question of whether they are similarly situated. However, this is not the basis of this holding, as'this court concludes it has no power to authorize notice.


author: PANNER, Chief Judge.

text:
    George VanLEEUWEN, Herbert C. Coleman, William A. Kessi, Ed Ammon, and Fred Kaser, Plaintiffs, v. The FARM CREDIT ADMINISTRATION; Donald J. Wilkinson; the Federal Intermediate Credit Bank of Spokane, Washington; Larry K. Butterfield; Twelfth Farm Credit District; and Ronald Bokma, Defendants.
    Civ. No. 83-1413-PA.
    United States District Court, D. Oregon.
    Dec. 12, 1984.

      See also 600 F.Supp. 1173.

      William D. Brandt, Ferder, Ogdahl & Brandt, Salem, Or., Henry A. Carey, Henry A. Carey, P.C., Portland, Or., for plaintiffs.
    Clifford N. Carlsen, Jr., R. Alan Wight, Richard A. Edwards, Miller, Nash, Wiener, Hager & Carlsen, Portland, Or., for defendants The Federal Intermediate Credit Bank of Spokane, Wash., Larry K. Butterfield, Twelfth Farm Credit Dist. and Ronald Bokma.
    Charles H. Turner, U.S. Atty., Jack G. Collins, Asst. U.S. Atty., Portland, Or., Richard K. Willard, Acting Asst. Atty. Gen., Sandra M. Schraibman, Stanley Dalton Wright, Wendy B. Kloner, U.S. Dept, of Justice, Civ.Div., Washington, D.C., for defendants The Farm Credit Ass’n and Donald J. Wilkinson.
   PANNER, Chief Judge.

Plaintiffs are five shareholders and former directors of the Willamette Production Credit Association (WPCA). Defendants are The Farm Credit Association (FCA); its Governor, Donald J. Wilkinson; The Federal Intermediate Credit Bank of Spokane, Washington (FICB); its President, Larry K. Butterfield; the Twelfth Farm Credit District; and the Chairman of its Board, Ronald Bokma. Plaintiffs’ first complaint alleged that the FCA improperly devalued security on loans and charged off assets when performing, a special audit of the WPCA’s books. On October 5, 1983, I restrained defendants from appointing a receiver for the WPCA and from beginning its liquidation. On October 26, 1983, I granted a preliminary injunction which declared the FCA’s June 30, 1983, special audit to be null and void, set aside the August 10, 1983, order of the FCA governor, enjoined defendants from soliciting or assisting ány WPCA borrower to transfer to the Central Oregon Production Credit Association, and restored the status quo of the WPCA to what it was as of August 9, 1983 (this restoration included reinstatement of plaintiffs as WPCA directors, reinstatement of the WPCA’s bylaws, and withdrawal of a finding of impairment of the WPCA’s stock). See generally VanLeeuwen v. The Farm Credit Assoc., 577 F.Supp. 264 (D.C.Or.1983).

On May 15, 1984, I dismissed this action with prejudice. My dismissal was based on a stipulated agreement filed with the court and signed by all parties. See Appendix I, Stipulation and Agreement of Dismissal. The parties agreed that the WPCA was in default and insolvent. They further agreed that, based on an adequate second examination of the WPCA, the FCA had the authority to place the WPCA into involuntary liquidation. The WPCA requested the FCA approve the Board’s March 8, 1983, resolution and place the WPCA in voluntary liquidation in accord with that resolution (except for item 2). The FCA agreed to approve the charter of a new production credit association in accordance with the terms of a May 4, 1984, letter of Governor Wilkinson. The parties agreed to dismissal with prejudice and that each party would bear its own costs and attorneys’ fees.

DISCUSSION

On June 18, 1984, plaintiffs filed a related case, Coleman, et al. v. Federal Intermediate Bank of Spokane, Washington, et al., CV 84-6251E-PA, involving essentially the same parties. I dismissed that case on the grounds that it was barred by res judicata.

On September 25, 1984, plaintiffs filed a motion to set aside judgment, to show cause, and for leave to file an amended complaint in the present case. After a hearing on that motion and extensive briefing by all parties, I grant plaintiffs’ motion to set aside the judgment pursuant to Fed. R.Civ.P. 60(b)(6). I will hold an evidentiary hearing on whether defendants have violated the terms of the stipulation. I grant plaintiffs’ motion to file an amended complaint. I will not decide plaintiffs’ motion for an order to show cause until the evidentiary hearing is held.

Plaintiffs ask that the judgment in this case be set aside pursuant to Fed.R.Civ.P. 60(b), subsections (1), (2), (3), or (6). Rule 60(b) states, in relevant part:

On motion and upon such terms as are just, the court may relieve a party ... from a final judgment, ... for the following reasons: (1) mistake, inadvertance, surprise, or excusable neglect; (2) newly discovered evidence by which due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; ... or (6) any other reason justifying relief from the operation of the judgment____

RELIEF FROM JUDGMENT PURSUANT TO FED.R.CIV.P. 60(b)(6).

Relief under subsection (6) can be obtained only for reasons other than the five listed in subsections (1)-(5) of the rule. Corex Corp. v. United States, 638 F.2d 119, 121 (9th Cir.1981). Subsection (6) only applies where there are extraordinary circumstances. Id. A motion under Rule 60(b) is within the district court’s discretion and is reviewed only for an abuse of that discretion. United States v. Sparks, 685 F.2d 1128, 1130 (9th Cir.1982). A party’s inability to seek timely relief under Rule 60(b)(3), which is brought about by repudiation of the settlement agreement by the other party, might constitute an extraordinary circumstance sufficient to invoke Rule 60(b)(6). Id. at 1131. Subsection (6) gives the district court the power to vacate judgments “whenever such action is appropriate to accomplish justice.” Id., (quoting Klapprott v. United States, 335 U.S. 601, 615, 69 S.Ct. 384, 390, 93 L.Ed. 1099 (1949)).

Upon repudiation of a settlement agreement which terminates litigation pending before it, a district court has the authority under Fed.R.Civ.P. 60(b)(6) to vacate the prior dismissal order and restore the ease to its docket. Fairfax Countywide Citizens v. Fairfax County, 571 F.2d 1299, 1302-03 (4th Cir.), cert. denied, 439 U.S. 1047, 99 S.Ct. 722, 58 L.Ed.2d 706 (1978). The Fairfax court stated that the district court can only enforce a settlement agreement if the agreement had been approved and incorporated into the court’s order or there is another basis for jurisdiction. Id. Otherwise, after the motion to set aside judgment is granted, the case must be litigated.

In Arco Corp. v. Allied Witan Co., 531 F.2d 1368, 1371 (6th Cir.), cert. denied, 429 U.S. 862, 97 S.Ct. 165, 50 L.Ed.2d 140 (1976), the court stated that the district court was “clearly” correct in vacating its order of dismissal and enforcing a settlement agreement repudiated by the defendant when the agreement was the basis for the dismissal. Courts retain inherent power to enforce agreements which settle litigation pending before them. Id. When a settlement agreement is repudiated, a motion pursuant to Rule 60(b)(6) for relief from the court order is appropriate. Backers v. Bit-She, 549 F.Supp. 388, 389 n. 2 (N.D.Cal.1982).

These cases establish that repudiation of a settlement agreement can be an “extraordinary circumstance” as required by Rule 60(b)(6) for relief from a judgment for “other reasons.” They further suggest an evidentiary hearing is appropriate to determine whether there has been a repudiation of a settlement agreement. Once a judgment is vacated under Rule 60(b)(6), the court can enforce the original agreement if it has been the basis for dismissal and incorporated into the court’s order or the case can proceed to a trial on the merits.

The settlement agreement in the present case states that the FCA approves voluntary liquidation of the WPCA according to terms contained in the March 8, 1984, Resolution of the Board of Directors of the WPCA with the exception of No. 2. Therefore, it appears that the terms of the resolution as well as those of the actual “Settlement Agreement” are the terms of the settlement.

Plaintiffs allege numerous actions by defendants which, if true, constitute violations of the settlement agreement. These alleged actions include: lack of properly promulgated regulations leading to a “fire-sale” approach to liquidation, filing an action against the Board and its counsel for attorneys’ fees, filing materials in state court which are under a protective order of this court, failure to provide meaningful reports to the directors of the WPCA, and fraudulent representations concerning class two loans. See Plaintiffs’ Reply Memorandum in Support.

LACK OF PROPERLY PROMULGATED REGULATIONS.

The March 8 WPCA resolution states, in part:

[I]t is in the best interest of the shareholders of the WPCA to voluntarily liquidate the WPCA pursuant to Section 1130 of the Farm Credit Regulations subject to the satisfaction of the following conditions by the FICB and the FCA:
....
5. FICB will appoint a liquidating agent and WPCA will be liquidated under the Bank’s regular plan of liquidation____

Plaintiffs’ Memorandum in Support, Stipulation and Agreement of Dismissal, Exhibit D, pp. 4-5. The only FCA regulation referring to liquidation procedures is 12 C.F.R. § 611.1140. Section 611.1140 states, in relevant part:

The board of directors of an association, by the adoption of an appropriate resolution, may place an association in voluntary liquidation, subject to approval of the bank board and the FCA, whereupon the supervising bank shall appoint a liquidating agent ____

Plaintiffs allege that defendants’ failure to promulgate more specific regulations for liquidation and their failure to actually have a “regular” liquidation plan promulgated under the requirements of the Administrative Procedures Act (APA) is a violation of the settlement.

“FIRE-SALE” APPROACH TO LIQUIDATION.

The March 8 WPCA resolution states that one of the major objectives of the plan is to safeguard against a “fire-sale” approach to liquidation. Plaintiffs contend that the WPCA is experiencing losses from defendants’ use of a “fire-sale” approach to liquidation and that these losses could be avoided if there were regulations governing liquidation.

If defendants are engaging in a fire-sale approach, it would be a violation of one of the objectives of the agreement. Plaintiffs also allege that the way to avoid a fire-sale approach is by correctly promulgating regulations. It may be that failure to promulgate regulations for liquidation under the APA is, itself, a violation of the agreement. It may also be that failure to promulgate these regulations did lead to a “fire-sale” approach to liquidation in violation of the agreement.

FILING AN ACTION AGAINST THE BOARD.

The settlement agreement states that each of the parties will pay its own attorneys’ fees. Plaintiffs argue that the WPCA was the real party to this agreement and that a resolution passed by the board to pay attorneys’ fees for this litigation was approved by the agreement. Defendants argue that the individual plaintiffs were responsible for their own fees. Defendants have filed suit in state court to recover these fees. Plaintiffs contend the filing of this suit is a violation of the settlement agreement. Whether this is, indeed, a violation depends on an interpretation of the agreement. It is within this court’s jurisdiction, not the state court’s, to determine what is a proper interpretation of the agreement. Arco v. Allied, supra.

Plaintiffs wish to file an amended complaint which asks that I enjoin the state court litigation. Defendants argue that this court does not have jurisdiction because there is no diversity of citizenship between the parties. Defendants also argue that such an injunction is prohibited by 28 U.S.C. § 2283 (1978). Section 2283 states that a United States court may not grant an injunction to stay state court proceedings except as expressly authorized by Congress or where necessary in aid of its jurisdiction or to protect its judgment.

If a proceeding in state court is ancillary to a case in federal court, the federal court may enjoin the state court proceedings, regardless of lack of diversity of citizenship. Pacific Tel & Tel Co. v. Star Publishing Co., 2 F.2d 151 (W.D.Wash.1924).

I have temporarily enjoined the state court proceedings to aid in enforcing the judgment in this case.

ALLEGED VIOLATION OF THE COURT’S PROTECTIVE ORDER.

Plaintiffs allege that defendants violated my protective order of May 10 by appending to their state court complaint materials making specific references to loan amounts, borrowers, and activities of the directors regarding those borrowers. Plaintiffs argue that this action also violates 12 C.F.R. § 618.8320 which requires confidentiality of recommendations of loan committees and reports of inspectors, field-men, investigators, and appraisers.

My protective order requires the clerk to seal an exhibit called “The Farm Credit Administration Special Examination Willamette Production Credit Association, November 25, 1983,” and orders that neither plaintiffs nor defendants shall disclose the names of any borrowers, loan account numbers of such borrowers or other information relating to such borrowers in that exhibit until further order of the court. The nonfederal defendants argue that the protective order relates to a different document than the one submitted to state court and that the documents submitted to state court do not contain loan account numbers of borrowers or the amounts of the loans. These defendants also argue that, to the extent any borrowers were identified by name, this information “apparently” was already a matter of public record. They state that this information was necessary evidence and that there was no intent to violate the protective order.

My order protected the information contained in the document and not just that specific document. In order to rule on this issue I must examine a copy of the document filed in state court. If the information in the submitted report is the information covered by my order, then defendants would be in violation of my May 10 protective order.

FAILURE TO PROVIDE REQUIRED REPORTS.

The settlement agreement requires that regular reports relating to the liquidation be provided to the WPCA Board. Plaintiffs allege that the defendants have failed to provide meaningful reports to the directors as required. If these allegations are true, the defendants would be in violation of the settlement agreement.

FRAUDULENT REPRESENTATIONS ABOUT CLASS TWO LOANS.

The agreement states that the liquidating agent will sell all of the WPCA’s Class one and two agricultural loans to the newly chartered PCA. Plaintiffs allege that nearly all Class two loans are being returned to the liquidator, reducing the new PCA’s loan volume, and making it harder for the new Western Oregon Production Credit Association (WOPCA) to survive. If, as plaintiffs imply, the receiver is not offering these Class two loans to the new WOPCA as required by the agreement this would be a violation of the agreement.

DEFENDANTS’ INTENTION NEVER TO FORM A VIABLE PCA AND SECRET PLAN TO CENTRALIZE

The resolution provides that liquidation will occur subject to the following conditions:

1. That a new production credit association will be formed to serve the same territory as WPCA, said new production credit association to offer financing and services to eligible farmers in the territory served, as provided by applicable laws and regulations.
....
4. The Governor of the Federal Credit Administration will repeal FCA’s recent action expanding the territory of Central Oregon Production Credit Association to include the territory which is presently served by WPCA and will be served by the new PCA.

Plaintiffs’ Memorandum in Support, Stipulation and Agreement of Dismissal, Exhibit D, pp. 4-5.

Condition one clearly contemplates a viable PCA for the Willamette Valley, and condition four contemplates an honest effort by defendants to keep this new PCA viable and not to centralize it. Plaintiffs have alleged secret plans to merge and to make the new PCA fail. If these allegations are true, these plans would be a violation of the settlement agreement.

CONCLUSION

In sum, it appears that defendants may have violated the settlement agreement by:

. (1) not properly promulgating regulations which leads to a fire-sale approach to liquidation;

(2) filing an action against the Board;

(3) violating the court’s protective order;

(4) failing to provide meaningful reports to directors of the WPCA;

(5) not buying sufficient numbers of class two loans; and

(6) planning to form a centralized PCA and eliminate the new WOPCA.

For these reasons, I grant plaintiffs’ motion to vacate the judgment on the basis of Fed.R.Civ.P. 60(b)(6) for the purpose of determining, through an evidentiary hearing, whether the defendants violated the settlement agreement as alleged by plaintiffs.

APPENDIX I

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

GEORGE VanLEEUWEN, HERBERT C. COLEMAN, WILLIAM A. KESSI, ED AMMON, and FRED KASER, Plaintiffs, vs. THE FARM CREDIT ADMINISTRATION; DONALD J. WILKINSON; THE FEDERAL INTERMEDIATE CREDIT BANK OF SPOKANE, WASHINGTON; LARRY K. BUTTER-FIELD; TWELFTH FARM CREDIT DISTRICT; and RONALD BOKMA, Defendants.

Civil Action No. CV 83-1413 PA

May 15, 1984

Stipulation and Agreement of Dismissal

The parties, by and through their undersigned counsel, hereby stipulate and agree as follows:

WHEREAS—

1. A lawsuit is pending between the parties in the United States District Court for the District of Oregon; and

2. The parties are desirous of settling the matters in dispute and terminating the lawsuit; and

3. The Farm Credit Administration has completed a second examination of the Willamette Production Credit Association (“WPCA”); and

4. The examination procedures and documentation used in that Farm Credit Administration examination were adequate; and

5. The WPCA is in default and insolvent; and

6. Based on the results of that examination the Farm Credit Administration has the authority to declare the WPCA insolvent, place the WPCA into involuntary liquidation, and appoint a receiver; and

7. In recognition of the foregoing, the board of directors of the WPCA has requested the Governor of the Farm Credit Administration to approve the board’s resolution to place the WPCA in voluntary liquidation in accord with the terms of said resolution, with the exception of Item #2 thereof; and

8. The Farm Credit Administration will approve the charter of a new production credit association in accordance with the terms and requests stipulated in the attached memorandum of Governor Donald E. Wilkinson, dated May 4, 1984, to All Incorporators of the Western Oregon Production Credit Association;

WHEREFORE, the parties agree that the above-captioned action is dismissed with prejudice and each party will bear its own costs and attorneys’ fees.

RESOLUTION

RESOLUTION of a meeting of the Board of Directors of the Willamette Production Credit Association held on the 8th day of March, 1984;

WHEREAS, the authority of the Board of Directors of the Willamette Production Credit Association (WPCA) was removed by the Farm Credit Administration on August 10, 1983, under authority granted by Section 1140 of Farm Credit Regulations; and

WHEREAS, the Board of Directors of the WPCA was reinstated on October 26, 1983 by the order of Judge Owen M. Panner, United States District Court, District of Oregon; and

WHEREAS, since the reinstatement, the Board has worked with the Federal Intermediate Credit Bank of Spokane (FICB) and the Farm Credit Administration (FCA) to determine the financial status of the WPCA; and

WHEREAS, it now appears that due to certain factors WPCA as it currently exists cannot provide as advantageous credit services to its membership as could be provided by another alternative; and

WHEREAS, the Board, working jointly with the FICB, has explored all alternatives available to the WPCA as well as to the FICB; Now therefore,

IT IS HEREBY THE RESOLUTION of the Board of the WPCA that it is in the best interest of the shareholders of the WPCA to voluntarily liquidate the WPCA pursuant to Section 1130 of Farm Credit Regulations subject to the satisfaction of the following conditions by the FICB and the FCA:

1. That a new production credit association will be formed to serve the same territory as WPCA, said new production credit assocaition to offer financing and services to eligible farmers in the territory served; as provided by applicable laws and regulations.

2. That WPCA will not be placed in voluntary liquidation status by the FICB until the new PCA’s charter has been issued by the Governor of FCA.

3. Members of WPCA who transfer their agricultural loans to the new PCA or their aquatic loans to Northwest Livestock PCA will have the proceeds from their WPCA B stock redemption credited at par value against their B stock investment requirement in the new association or Northwest Livestock PCA.

B stock redemption credits on WPCA paid off loans will be paid to members at par value.
Class A stock of WPCA will be retired at par value.
All other member B stock and participation certificates will be processed at par value under WPCA’s membership and general financing agreement and the laws and regulations governing WPCA in Liquidation.

4. The Governor of the Farm Credit Administration will repeal FCA’s recent action expanding the territory of Central Oregon Production Credit Association to include the territory which is presently served by WPCA and will be served by the new PCA.

5. FICB will appoint a liquidating agent and WPCA will be liquidated under the Bank’s regular plan of liquidation. The liquidating agent will sell all of WPCA’s Class 1 and 2 agricultural loans to the newly chartered PCA subject to its approval and will sell all of its Class 1 and 2 aquatic loans to Northwest Livestock PCA subject to its approval.

The major objectives of the liquidation plan are as follows:

a. To resolve the liquidation process on a timely basis, to maximize the return from the association’s assets and minimize losses to its creditors.
b. To focus both on the collection and/or improvement, which will allow collection or reclassification, of nonperforming loans that are the most costly assets of the association.
c. To safeguard against a “fire sale” approach to liquidation but rather to encourage timely, reasonable liquidation.
To the extent deemed necessary by the liquidating agent, he may call upon the WPCA Board of Directors for advice and counsel to attain the objectives set forth above. The liquidating agent will provide the WPCA Board with the regular reports relating to the progress of the liquidation.

These aforementioned conditions are mutually dependent on one another, and without compliance with all of them this resolution shall be of no force or effect.

This resolution has been adopted by the Board of Directors of WPCA in furtherance of the best interest of its members.

/s/George Van Leeuwen

George Van Leeuwen

/s/Ed N. Ammon

Ed N. Ammon

/s/Herbert C. Coleman

Herbert C. Coleman

/s/William A. Kessi

William A. Kessi

/s/Fred Kaser

Fred Kaser

Memorandum

May 4,1984

To: All Incorporators

Western Oregon Production Credit Association

From: Donald E. Wilkinson

Governor

Subject: Application for a Charter for the Western Oregon Production Credit Association

The Farm Credit Administration has analyzed the application to charter a new production credit association to serve the territory currently served by the Willamette Production Credit Association. In analyzing any application, three factors are of primary importance:

1. The association currently serving the territory of the proposed association is analyzed to determine whether the existing association is serving the territory effectively.
2. The directors of the proposed association have demonstrated sound financial management and business judgment in the operation of their own business and/or through other business affiliations.
3. The operating plan submitted by the applicants offers some prospect that the newly chartered association can be successful.

Considering those three main factors in your application, we find:

1. Several of the proposed board members have loans with the Willamette PCA that are classified less than acceptable. The adverse loan classification identifies loans that have serious credit weaknesses that require more than normal servicing. The classification evidences that the borrower is experiencing problems in his agricultural operations that reflect negatively on the borrower’s practices. In addition, since the loan quality has deteriorated, the borrower’s impartiality and objectivity in the decisionmaking process of the board is in question. For these reasons, no charter request can be approved that contains proposed directors with adversely classified loans. In addition, two of the present directors of the Willamette PCA are proposed as directors of the Western Oregon PCA. The financial condition of the Willamette PCA has been in decline since 1980. The board was not successful in assuring that necessary corrective actions were made, as evidenced by the current default and insolvency of the Willamette PCA. Therefore, members of the Willamette PCA board cannot serve as directors of the Western Oregon PCA.
2. The proposed territory is currently served by the Willamette PCA. A new PCA cannot be chartered to serve this territory until the Willamette PCA is placed in liquidation through voluntary liquidation or receivership. The liquidation of the Willamette PCA is necessary in order that the new PCA be provided with sufficient loan volume (in the form of acceptable loans acquired from the Willamette PCA in receivership) to provide the new PCA with reasonable prospects for survival.
8. The operating plan proposes joint staff between the Western Oregon PCA and the Willamette PCA. While such an arrangement may be necessary for a short interim period, it must not continue beyond a certain date because the activities and responsibilities of the employees of the two entities are distinct and must be kept separate.

The Farm Credit Administration will give favorable consideration to an application to issue a charter to the Western Oregon PCA if the application is amended as follows:

1. The proposed membership of the board must be brought into conformity with the following requirements: each proposed director who is a borrower of the Willamette PCA must have a loan that is classified “Acceptable”; and no proposed director can be a member of the present Willamette PCA Board of Directors.
2. The agreement between the proposed association and the Willamette PCA to maintain some joint staff must have a termination date of no later than 6 months following the issuance of a charter for the Western Oregon PCA. After that date, no joint employees will be maintained. The charter will be issued when the WPCA is placed in liquidation.

FCA is prepared to charter the Western Oregon PCA on the bases outlined above, but the following reservations must be noted and recognized by the incorporators. The proposed association offers significant disadvantages over an earlier proposal (Central Oregon) to provide credit service to the territory currently served by the Willamette PCA. The proposed association will charge a higher interest rate. Service will not be as good due to fewer branches and the operation of the participation pool that currently accepts only acceptable loans and well-secured problem loans only after making its own independent credit decision. Finally, the association will have no initial capacity to absorb credit risks. In spite of these disadvantages, the incorporators desire a separate association serving the Willamette Valley. Therefore, if the above conditions are met, a charter will be issued for the Western Oregon PCA.

It is FCA’s obligation to assure, to the extent possible, that the incorporators of the proposed association have as many facts at hand as possible to assist them in making a decision. FCA is not able to take into consideration any intangible differences inherent in dissimilar agricultural areas, so its evaluation of any alternative proposals is limited only to financial factors. FCA, however, does encourage the incorporators to actively identify and consider all factors impacting on alternatives.

The agency considered the last proposal presented by Central Oregon as an economic alternative. The analysis makes the assumption that Central Oregon’s most recent proposal would still be in effect, although, no contact has been made with Central Oregon to determine this. The Central Oregon PCA could reject or alter any proposal placed before it. With this as a basis, FCA proceeded to make an analysis of the proposal presented in 1983 by Central Oregon, updated with Central Oregon’s 5 year financial projection current as of late 1983 and based on their March 31, 1984 balance sheet.

The current FCA analysis of the Central Oregon proposal, if now implemented, shows net savings to the borrower over the new charter proposal of 0.4 percent in interest costs. In its original proposal, Central Oregon would have accepted Willamette PCA’s class 1 and 2 loans with a provision that Central Oregon would have up to 120 days to inspect the Willamette PCA loans and reject those not meeting Central Oregon’s credit standards. Central Oregon proposed an interest spread of 1.00 percent over the lending rate to its own borrowers. Using Central Oregon’s current spread to its own borrowers of 0.6 percent would mean a spread of 1.6 percent to the Willamette members. This is compared with the new Western Oregon PCA, which proposes a 2 percent spread. Additionally, if arrangements were made with Central Oregon for its purchase of the loans on the same basis as is contained in the Western Oregon proposal, i.e., that the loans would be participated in the pool loan program on a 90 percent basis, the interest rate that the Willamette area borrowers would pay would still be 0.4 percent below the interest rate proposed to be charged by the Western Oregon PCA.

The FCA projection of the Western Oregon PCA indicates that the proposed PCA will generate only $81,000 in risk funds by the end of 1984 and $564,000 by the end of 1988. (This projection assumes no loan losses for 5 years.)

The Central Oregon proposal would have resulted in over $6 million in risk funds at the end of 1984 and approximately $9.5 million at the end of 1988. This would be a financially strong PCA.

FCA’s study on the viability of the proposed Western Oregon PCA indicates it has a chance of success if the assumptions on growth and loan losses are correct. However, it is estimated that it will take longer than 5 years before the proposed PCA can consider reducing its dependency on the district pool and begin normal lending operations.

If the new association is chartered, borrowers from the Willamette PCA whose loans are classified “Acceptable” or any other borrower accepted by Western Oregon PCA may voluntarily become members of the new association. This action must be evidenced by each borrower’s executing a membership agreement with the Western Oregon PCA. This agreement must provide the borrower with an explanation of his/her rights and liabilities as a borrower/stockholder of the Western Oregon PCA. Prior to becoming stockholders and executing a membership agreement, all prospective stockholders shall be given a pro forma financial statement of the Western Oregon PCA.

This statement can be prepared on the assumption that all Willamette PCA loans classified “Acceptable” will be transferred to the new production credit association. The statement will be footnoted in explain the assumptions used in its preparation. Thereafter, borrowers shall be provided financial statements of the association at least semiannually.

Farm Credit Administration

May 4, 1984

Mr. George Van Leeuwen, Chairman

Board of Directors

Willamette Production Credit Association

P.O. Box 590

Salem, OR 97308

Dear Mr. Leeuwen:

The November 25, 1983 credit examination of the Willamette Production Credit Association has been completed. The results of this examination are summarized in the enclosed report.

After the adjustments reflecting the results of the examination are made to the association’s financial statements, the following significant facts are evident:

1. The association’s capital stock is impaired.
2. The association is in default on its loan from the Federal intermediate credit bank and is insolvent.
3. If the association resumes its program of retiring capital stock and participation certificates in excess of the amount needed to capitalize a borrower’s loan, the association’s debt-to-capital ratio will exceed the 10 to 1 limit permitted by law.

In recognition of these facts, the board has requested that the Governor of the Farm Credit Administration approve the board’s resolution to place the association in voluntary liquidation.

As you are aware, the lawsuit, Van Leeuwen, et al., v. Farm Credit Administration et al, is pending in United States District Court, District of Oregon. Currently, the Farm Credit Administration is under a restraining order that prevents the Agency from approving the request to place the association in voluntary liquidation. The court has scheduled a trial date of May 16, 1984. FCA intends to file a motion for a summary judgment by May 18, 1984, and will request that the trial date be delayed pending a decision on that motion.

The lawsuit can only be terminated by a dismissal or by the court’s entering a judgment. FCA is prepared to move to a judgment but will agree to a dismissal of the action with prejudice against the plaintiffs. In connection with the dismissal, FCA will approve the action of the board to place the Willamette PCA in voluntary liquidation.

Sincerely,

/s/Donald E. Wilkinson

Donald E. Wilkinson

Governor

Enclosure

APPENDIX II

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

GEORGE VanLEEUWEN, HERBERT C. • COLEMAN, WILLIAM A. KESSI, ED AMMON, and FRED KASER, Plaintiffs, vs. THE FARM CREDIT ADMINISTRATION; DONALD J. WILKINSON; THE FEDERAL INTERMEDIATE CREDIT BANK OF SPOKANE, WASHINGTON; LARRY K. BUTTER-FIELD; TWELFTH FARM CREDIT DISTRICT; and RONALD BOKMA, Defendants.

Civil No. 83-1413-PA

May 15, 1984

ORDER

Based upon the stipulation of the parties filed herewith, this action is dismissed with prejudice and each party will bear its own costs and attorneys’ fees.

DATED this 15th day of May, 1984.

/s/Owen M. Panner

Owen M. Panner

United States District Judge

Presented by:

/s/Jack G. Collins

Jack G. Collins, Asst. U.S. Attorney

Attorney for United States


text:
    George VANLEEUWEN, Herbert C. Coleman, William A. Kessi, Ed Ammon, and Fred Kaser, Plaintiffs, v. The FARM CREDIT ADMINISTRATION; Donald J. Wilkinson; the Federal Intermediate Credit Bank of Spokane, Washington; Larry K. Butterfield; Twelfth Farm Credit District; and Ronald Bokma, Defendants.
    Civ. No. 83-1413-PA.
    United States District Court, D. Oregon.
    Dec. 28, 1984.

      William D. Brandt, Ferder, Ogdahl & Brandt, Salem, Or., Henry A. Carey, Henry A. Carey, P.C., Portland, Or., for plaintiffs.
    Clifford N. Carlsen, Jr., R. Alan Wright, Richard A. Edwards, Miller, Nash, Wiener, Hager & Carlsen, Portland, Or., for defendants The Federal Intermediate Credit Bank of Spokane, Wash., Larry K. Butterfield, Twelfth Farm Credit Dist., and Ronald Bokma.
    Charles H. Turner, U.S. Atty., Jack G. Collins, Asst. U.S. Atty., Portland, Or., Richard K. Willard, Acting Asst. Atty. Gen., Sandra M. Schraibman, Stanley Dalton Wright, Wendy B. Kloner, U.S. Dept, of Justice, Civ. Div., Washington, D.C., for defendants The Farm Credit Ass’n and Donald J. Wilkinson.
   PANNER, Chief Judge.

Plaintiffs are five shareholders and former directors of the Willamette Production Credit Association (WPCA). Defendants are The Farm Credit Association (FCA); its Governor, Donald J. Wilkinson; The Federal Intermediate Credit Bank of Spokane, Washington (FICB); its President, Larry K. Butterfield; the Twelfth Farm Credit District; and the Chairman of its Board, Ronald Bokma. Plaintiffs’ initial complaint alleged that the FCA improperly devalued security on loans and charged off assets when performing a special audit of the WPCA’s books. On October 5, 1983, I restrained defendants from appointing a receiver for the WPCA and from beginning its liquidation. On October 26, 1983, I granted a preliminary injunction which declared the FCA’s June 30, 1983, special audit to be null and void, set aside the August 10, 1983, order of the FCA governor, enjoined defendants from soliciting or assisting any WPCA borrower to transfer to the Central Oregon Production Credit Association, and restored the status quo of the WPCA to what it was as of August 9, 1983. This restoration included reinstatement of plaintiffs as WPCA directors, reinstatement of the WPCA’s bylaws, and withdrawal of a finding of impairment of the WPCA's stock. See generally VanLeeuwen v. The Farm Credit Assoc., 577 F.Supp. 264 (D.Or.1983).

On May 15, 1984, I dismissed this action with prejudice based on a stipulated agreement. See Appendix I, Stipulation and Agreement of Dismissal. The parties agreed that the WPCA was in default and insolvent. They further agreed that, based on an adequate second examination of the WPCA, the FCA had the authority to place the WPCA into involuntary liquidation. The WPCA requested the FCA approve the board’s March 8, 1984, resolution except for item 2 and place the WPCA in voluntary liquidation in accord with that resolution. The FCA agreed to approve the charter of a new production credit association in accordance with the terms of a May 4, 1984, letter of Governor Wilkinson. The parties agreed to a dismissal with prejudice.

On December 5, 1984, nunc pro tunc, as of November 29,1984 at 8:30 A.M., I granted plaintiff’s motion to set aside the judgment pursuant to Fed.R.Civ.P. 60(b)(6) for the purpose of determining, through an evidentiary hearing, whether the defendants violated the settlement agreement as alleged by plaintiffs. 600 F.Supp. 1161. I also issued a temporary restraining order (TRO) enjoining any further effort toward the liquidation of the WPCA and litigation proceeding in the Circuit Court for the State of Oregon (Willamette Production Credit Assoc., et al. v. Kaser, Civil No. 84-7-98). I renewed this TRO on December 11, 1984. On December 21, 1984, I issued a preliminary injunction enjoining any further steps in the liquidation of the WPCA pending issuance of this more formal decision. I also denied defendants’ motions for a stay pending appeal and the posting of a bond by plaintiffs.

For the reasons stated below, I find the defendants have not violated the settlement agreement, and I reinstate the initial judgment of dismissal with prejudice. The preliminary injunction issued on December 21, 1984, is dissolved effective Wednesday, January 2, 1985, at 5:00 P.M.

THE BOARD RESOLUTION OF MARCH 8, 1984

It is necessary first to determine whether or not the March 8, 1984 WPCA Resolution is part of the settlement agreement. Title 12 U.S.C. § 2183(a) provides, in part:

No institution of the System shall go into voluntary liquidation without the consent of the FCA and with such consent may liquidate only in accordance with regulations prescribed by the FCA.

The only regulation promulgated by the FCA dealing with liquidation is 12 C.F.R. § 611.1130 which states, in part:

[T]he board of directors of an association, by the adoption of an appropriate resolution, may place an association in voluntary liquidation, subject to approval of the bank board and the FCA____

(Emphasis added).

The statute states that the only way for a production credit association (PCA) to voluntarily liquidate is in accordance with the FCA regulations. The only regulation dealing with liquidation states that the procedure for voluntary liquidation must be by a resolution of the board of the PCA. The statute and the regulation require a board resolution as part of any agreement to voluntarily liquidate a PCA.

The March 8, 1984 Resolution adopted by the WPCA Board pursuant to 12 C.F.R. § 1130 states that it will voluntarily liquidate the WPCA subject to a number of conditions. This Resolution makes it clear that any agreement by the WPCA to voluntarily liquidate was specifically conditioned upon the acceptance of these conditions by the FICB and the FCA.

The settlement agreement filed with the court in this case states, in part:

[T]he board of directors of the WPCA has requested the Governor of the Farm Credit Administration to approve the board’s resolution to place the WPCA in voluntary liquidation in accord with the terms of said resolution, with the exception of Item # 2 thereof____

(Appendix I, at pp. 4-5, emphasis added.) In a May 4, 1984 letter from Governor Wilkinson filed as part of the settlement agreement, he stated: “In connection with the dismissal, FCA will approve the action of the board to place the Willamette PCA in voluntary liquidation.” (Appendix I at p. 12.)

The plain meaning of the statute, regulation, and settlement agreement show that:

(1) A voluntary liquidation of a PCA can only proceed after adoption of an appropriate resolution by the PCA’s board;

(2) The appropriate WPCA resolution contained certain conditions which had to be met before the WPCA would agree to voluntary liquidation;

(3) The May 4, 1984 letter of the Governor approved the board’s action, thereby approving the conditions of voluntary liquidation as well as the fact of voluntary liquidation itself;

(4) The settlement agreement states that any approval of the liquidation by the Governor must be in accord with the terms of the March 8, 1984 Resolution; and

(5) The board’s resolution was attached to the stipulated settlement.

If the Governor was unwilling to accept the board’s conditions, he had the option to reject them and either obtain a new resolution for voluntary liquidation or act under subparagraph (b) of section 2183 to effect an involuntary liquidation.

The board resolution is part of the settlement agreement.

DISCUSSION

The violations of the settlement agreement alleged by plaintiffs in their motion to set aside the judgment were:

(1) Lack of properly promulgated regulations;

(2) A “fire-sale” approach to liquidation caused, in part, by a lack of properly promulgated regulations;

(3) Filing an action against plaintiffs in state court;

(4) Violation of the court’s protective order of May 10;

(5) Failure to provide required reports;

(6) Fraudulent representations about Class Two loans; and

(7) Defendants’ intention never to form a viable PCA and secret plan to centralize.

I. Lack of Properly Promulgated Regulations.

The language of the statute authorizing voluntary liquidation of a PCA allows liquidation to occur only in accordance with FCA regulations. 12 U.S.C. § 2183(a). This statutory language clearly contemplates that the FCA must enact regulations governing liquidation and the FCA has conceded this at the preliminary injunction hearing. The one FCA regulation dealing with liquidation is 12 C.F.R. § 611.1130, supra. This regulation essentially restates the statute and allows an association to go into voluntary liquidation, subject to approval of the bank board and the FCA. It does not supply the essential procedures and substantive standards necessary to comply with the statutory mandate. See Curry v. Block, 738 F.2d 1556 (11th Cir.1984) (Consolidated Farm and Rural Development Act created a right to uniform procedures and substantive standards so agency mandated to adopt regulations); United States v. Markgraf 736 F.2d 1179 (7th Cir.1984); and Matzke v. Block, 732 F.2d 799 (10th Cir.1984). There is a serious question about whether the FCA can liquidate a PCA without having properly promulgated regulations. This lack of regulations may be posing hardships to the individual farmers whose loans are being foreclosed. The question before me, however, is whether the settlement agreement was procured by fraud or violated so as to justify setting aside the stipulation and the judgment of dismissal.

The settlement agreement states that the liquidation of the WPCA will be pursuant to section 1130 of the Farm Credit Regulations. (Appendix I at p. 4.) Plaintiffs agreed to the liquidation pursuant to this one regulation. The agreement does not require further regulations prior to the WPCA liquidation. The evidence shows that plaintiffs were aware of the existence of the Southern Idaho PCA Liquidation Plan when they signed the agreement and agreed to voluntary liquidation following the pattern established in that liquidation. (See Statement of Board of Directors Leading to Voluntary Liquidation at p. 3, Addendum to WPCA Board Meeting Minutes of March 8, 1984).

Although lack of any properly promulgated regulations governing the liquidation procedures for PCAs appears to violate the statute, it does not violate the settlement entered into by plaintiffs and cannot provide a basis for setting aside the judgment based on that agreement.

II. Alleged “Fire-Sale Approach to Liquidation.

One of the major objectives of tne liquidation stated in the settlement agreement was to safeguard against a "fire-sale” approach to liquidation. (Appendix I at p. 5.) A lack of properly promulgated regulations could only violate the settlement agreement by causing a “fire-sale” approach to liquidation. I find there has not been a “fire-sale” approach to the WPCA liquidation.

On May 21, 1984, when the receiver took over operation of the WPCA, thirty loans were in foreclosure or bankruptcy proceedings. Since that date there have been eight new foreclosure or bankruptcies. (See FICB Defendants’ Memorandum Concerning Preliminary Injunction filed Dec. 7, 1984.) Plaintiffs cite to only one instance where they allege such an approach. (See Affidavit of Philip Brandt.) This volume of foreclosure or bankruptcy does not establish a “fire-sale” approach to liquidation.

III. Filing an Action Against Plaintiffs in State Court.

The settlement agreement states that each of the parties will pay its own attorneys’ fees. (Appendix I at p. 6.) Plaintiffs argue that the WPCA was the real party to this agreement and that a resolution passed by the board to pay plaintiffs’ attorneys’ fees for this litigation was approved by this agreement. Defendants argue that the individual plaintiffs were responsible for their own fees and have filed suit in state court to recover these fees. There is a factual issue to be determined by the state court. Such a good faith dispute is not a basis for setting aside the judgment in the present case. See Strama v. Peterson, 96 F.R.D. 198 (N.D.Ill.1982) (Fed.R.Civ.P. 60(b) motion denied, in part, because breach of settlement contested), and United States v. National Bank and Trust Co., 101 F.R.D. 770 (N.D.Ill.1984) (Fed.R.Civ.P. 60 motion should be denied if it is more appropriate for a separate action to be filed).

IV. Alleged Violation of the May 10, 1984 Protective Order.

The protective order is not a part of the settlement agreement. Violation, if there was one, does not justify setting aside the judgment. See American National Bank, supra at 771 (Fed.R.Civ.P. 60 motion not appropriate to enforce an accord which was not part of a settlement agreement).

V. Failure to Provide Required Reports.

The settlement agreement requires the liquidating agent to provide the WPCA board with regular reports relating to the progress of the liquidation. (Appendix I at p. 5.) Plaintiffs allege that the WPCA board members were never supplied with these regular reports. Some, but not regular, reports were provided. On May 16, 1984, the day after the order dismissing this case was filed, the WPCA board voted to file a new lawsuit (Coleman, et al. v. FICB, et al., Civil No. 84-6215E-PA) against many of the defendants in the present case. (See WPCA Board of Directors Meeting Minutes, May 16, 1984 at p. 4, FICB Defendants Exhibit 301.) Plaintiffs immediately set up an adversarial relationship with many of the defendants. Failure to provide plaintiffs with regular liquidation reports under such circumstances is not a basis for setting aside the judgment.

VI. Fraudulent Representations About Class Two Loans.

The agreement states that the liquidating agent will sell all of the WPCA’s Class One and Two agricultural loans to the newly chartered PCA subject to its approval. (Appendix I at p. 5.) Plaintiffs allege that nearly all Class Two loans are being returned to the liquidator, reducing the new PCA’s loan volume, and making it harder for the new Western Oregon Production Credit Association (WOPCA) to survive. I find that there has been no fraud in the offering of these loans to the WOPCA and no undue pressure on the new WOPCA board to force them not to accept these loans. All the loans required to be offered to the WOPCA have been offered to it. The directors of WOPCA have made the decision as to which loans to return.

VII. Allegations That Defendants Never Intended to Form a Viable PCA and That Defendants Have a Secret Plan to Centralize the PCAs.

The settlement agreement provides that a new PCA will be formed to serve the same territory as the WPCA and that the FCA Governor will repeal his action including the territory served by the WPCA in the territory served by the Central Oregon Production Credit Association (COPCA). (Appendix I at pp. 4-5.) This was done. Plaintiffs allege that defendants have a secret plan to merge the PCAs and to make the new PCA fail. I do not find these allegations to be supported by the evidence.

Governor Wilkinson’s May 4, 1984 letter to WOPCA incorporators noted that he believed the proposed WOPCA offered significant disadvantages over an earlier plan to merge the WPCA’s territory with the COP-CA. (Appendix I at p. 8.) Plaintiffs were on notice that the FCA had reservations about the viability of the new WOPCA at the time of the settlement. These reservations, without more, do not show intent by the FCA not to form a viable PCA or to centralize the PCAs.

The minutes of the May 7, 1984 meeting of the WPCA board also show significant knowledge of the terms of the settlement agreement and of the new WOPCA board. (FICB Defendants’ Exhibit 301.) Present at this meeting were Bill Hoffman, Associate Deputy Governor of the FCA, and Steven C. Hilts, Financial Supervisory Officer of the FCA. The plaintiffs learned at that meeting that Gerald Wharton would be the WPCA liquidator. Tom Brown stated that a $1,000,000 capital infusion would be made into the new PCA. The WOPCA incorporators were also present so WPCA board members knew who they would be and who would nominate the WOPCA’s board of directors. With this knowledge, the plaintiffs entered into the settlement agreement.

The May 16, 1984 Minutes of the WPCA (FICB Defendants Exhibit 302) recognize that the WPCA was insolvent and not viable. They knew WOPCA would have a difficult time. Hopefully, it may yet succeed. WPCA cannot be reinstated. Its assets are gone, the stock has been repurchased, past and prospective borrowers have lost confidence due in large measure to the actions of defendants.

Plaintiffs brought this action to complain of a faulty audit of the WPCA. They subsequently agreed that the WPCA was insolvent and agreed to enter into voluntary liquidation. Plaintiffs have not shown that they were fraudulently induced to enter into the settlement agreement, that it was a result of excusable neglect on their part, nor that the settlement agreement has been substantially violated by the defendants. The judgment of dismissal is reinstated and the preliminary injunction issued December 21, 1984 will terminate January 2, 1985 at 5:00 P.M.

APPENDIX I

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

GEORGE VanLEEUWEN, HERBERT C. COLEMAN, WILLIAM A. KESSI, ED AMMON, and FRED KASER, Plaintiffs, vs. THE FARM CREDIT ADMINISTRATION; DONALD J. WILKINSON; THE FEDERAL INTERMEDIATE CREDIT BANK OF SPOKANE, WASHINGTON; LARRY K. BUTTER-FIELD; TWELFTH FARM CREDIT DISTRICT; and RONALD BOKMA, Defendants.

Civil Action No. CV 83-1413 PA

May 15, 1984

Stipulation and Agreement of Dismissal

The parties, by and through their undersigned counsel, hereby stipulate and agree as follows:

WHEREAS—

1. A lawsuit is pending between the parties in the United States District Court for the District of Oregon; and

2. The parties are desirous of settling the matters in dispute and terminating the lawsuit; and

3. The Farm Credit Administration has completed a second examination of the Willamette Production Credit Association (“WPCA”); and

4. The examination procedures and documentation used in that Farm Credit Administration examination were adequate; and

5. The WPCA is in default and insolvent; and

6. Based on the results of that examination the Farm Credit Administration has the authority to declare the WPCA insolvent, place the WPCA into involuntary liquidation, and appoint a receiver; and

7. In recognition of the foregoing, the board of directors of the WPCA has requested the Governor of the Farm Credit Administration to approve the board’s resolution to place the WPCA in voluntary liquidation in accord with the terms of said resolution, with the exception of Item # 2 thereof; and

8. The Farm Credit Administration will approve the charter of a new production credit association in accordance with the terms and requests stipulated in the attached memorandum of Governor Donald E. Wilkinson, dated May 4, 1984, to All Incorporators of the Western Oregon Production Credit Association;

WHEREFORE, the parties agree that the above-captioned action is dismissed with prejudice and each party will bear its own costs and attorneys’ fees.

RESOLUTION

RESOLUTION of a meeting of the Board of Directors of the Willamette Production Credit Association held on the 8th day of March, 1984;

WHEREAS, the authority of the Board of Directors of the Willamette Production Credit Association (WPCA) was removed by the Farm Credit Administration on August 10, 1983, under authority granted by Section 1140 of Farm Credit Regulations; and

WHEREAS, the Board of Directors of the WPCA was reinstated on October 26, 1983 by the order of Judge Owen M. Panner, United States District Court, District of Oregon; and

WHEREAS, since the reinstatement, the Board has worked with the Federal Intermediate Credit Bank of Spokane (FICB) and the Farm Credit Administration (FCA) to determine the financial status of the WPCA; and

WHEREAS, it now appears that due to certain factors WPCA as it currently exists cannot provide as advantageous credit services to its membership as could be provided by another alternative; and

WHEREAS, the Board, working jointly with the FICB, has explored all alternatives available to the WPCA as well as to the FICB; Now therefore,

IT IS HEREBY THE RESOLUTION of the Board of the WPCA that it is in the best interest of the shareholders of the WPCA to voluntarily liquidate the WPCA pursuant to Section 1130 of Farm Credit Regulations subject to the satisfaction of the following conditions by the FICB and the FCA:

1. That a new production credit association will be formed to serve the same territory as WPCA, said new production credit association to offer financing and services to eligible farmers in the territory served; as provided by applicable laws and regulations.

2. That WPCA will not be placed in voluntary liquidation status by the FICB until the new PCA’s charter has been issued by the Governor of FCA.

3. Members of WPCA who transfer their agricultural loans to the new PCA or their aquatic loans to Northwest Livestock PCA will have the proceeds from their WPCA B stock redemption credited at par value against their B stock investment requirement in the new association or Northwest Livestock PCA.

B stock redemption credits on WPCA paid off loans will be paid to members at par value.
Class A stock of WPCA will be retired at par value.
All other member B stock and participation certificates will be processed at par value under WPCA’s membership and general financing agreement and the laws and regulations governing WPCA in Liquidation.

4. The Governor of the Farm Credit Administration will repeal FCA’s recent action expanding the territory of Central Oregon Production Credit Association to include the territory which is presently served by WPCA and will be served by the new PCA.

5. FICB will appoint a liquidating agent and WPCA will be liquidated under the Bank’s regular plan of liquidation. The liquidating agent will sell all of WPCA’s Class 1 and 2 agricultural loans to the newly chartered PCA subject to its approval and will sell all of its Class 1 and 2 aquatic loans to Northwest Livestock PCA subject to its approval.

The major objectives of the liquidation plan are as follows:

a. To resolve the liquidation process on a timely basis, to maximize the return from the association’s assets and minimize losses to its creditors.
b. To focus both on the collection and/or improvement, which will allow collection or reclassification, of nonperforming loans that are the most costly assets of the association.
c. To safeguard against a “fire sale” approach to liquidation but rather to encourage timely, reasonable liquidation.
To the extent deemed necessary by the liquidating agent, he may call upon the WPCA Board of Directors for advice and counsel to attain the objectives set forth above. The liquidating agent will provide the WPCA Board with the regular reports relating to the progress of the liquidation.

These aforementioned conditions are mutually dependent on one another, and without compliance with all of them this resolution shall be of no force or effect.

This resolution has been adopted by the Board of Directors of the WPCA in furtherance of the best interest of its members.

/s/George Van Leeuwen

George Van Leeuwen

/s/Ed N. Ammon

Ed N. Ammon

/s/Herbert C. Coleman

Herbert C. Coleman

/s/William A. Kessi

William A. Kessi

/s/Fred Kaser

Fred Kaser

Memorandum

May 4, 1984

To: All Incorporators

Western Oregon Production Credit Association

From: Donald E. Wilkinson

Governor

Subject: Application for a Charter for the Western Oregon Production Credit Association

The Farm Credit Administration has analyzed the application to charter a new production credit association to serve the territory currently served by the Willamette Production Credit Association. In analyzing any application, three factors are of primary importance:

1. The association currently serving the territory of the proposed association is analyzed to determine whether the existing association is serving the territory effectively.
2. The directors of the proposed association have demonstrated sound financial management and business judgment in the operation of their own business and/or through other business affiliations.
3. The operating plan submitted by the applicants offers some prospect that the newly chartered association can be successful.

Considering those three main factors in your application, we find:

1. Several of the proposed board members have loans with the Willamette PCA that are classified less than acceptable. The adverse loan classification identifies loans that have serious credit weaknesses that require more than normal servicing. The classification evidences that the borrower is experiencing problems in his agricultural operations that reflect negatively on the borrower’s practices. In addition, since the loan quality has deteriorated, the borrower’s impartiality and objectivity in the decisionmaking process of the board is in question. For these reasons, no charter request can be approved that contains proposed directors with adversely classified loans. In addition, two of the present directors of the Willamette PCA are proposed as directors of the Western Oregon PCA. The financial condition of the Willamette PCA has been in decline since 1980. The board was not successful in assuring that necessary corrective actions were made, as evidenced by the current default and insolvency of the Willamette PCA. Therefore, members of the Willamette PCA board cannot serve as directors of the Western Oregon PCA.
2. The proposed territory is currently served by the Willamette PCA. A new PCA cannot be chartered to serve this territory until the Willamette PCA is placed in liquidation through voluntary liquidation or receivership. The liquidation of the Willamette PCA is necessary in order that the new PCA be provided with sufficient loan volume (in the form of acceptable loans acquired from the Willamette PCA in receivership) to provide the new PCA with reasonable prospects for survival.
3. The operating plan proposes joint staff between the Western Oregon PCA and the Willamette PCA. While such an arrangement may be necessary for a short interim period, it must not continue beyond a certain date because the activities and responsibilities of the employees of the two entities are distinct and must be kept separate.

The Farm Credit Administration will give favorable consideration to an application to issue a charter to the Western Oregon PCA if the application is amended as follows:

1. The proposed membership of the board must be brought into conformity with the following requirements: each proposed director who is a borrower of the Willamette PCA must have a loan that is classified “Acceptable”; and no proposed director can be a member of the present Willamette PCA Board of Directors.
2. The agreement between the proposed association and the Willamette PCA to maintain some joint staff must have a termination date of no later than 6 months following the issuance of a charter for the Western Oregon . PCA. After that date, no joint employees will be maintained. The charter will be issued when the WPCA is placed in liquidation.

FCA is prepared to charter the Western Oregon PCA on the bases outlined above, but the following reservations must be noted and recognized by the incorporators. The proposed association offers significant disadvantages over an earlier proposal (Central Oregon) to provide credit service to the territory currently served by the Willamette PCA. The proposed association will charge a higher interest rate. Service will not be as good due to fewer branches and the operation of the participation pool that currently accepts only acceptable loans and well-secured problem loans only after making its own independent credit decision. Finally, the association will have no initial capacity to absorb credit risks. In spite of these disadvantages, the incorporators desire a separate association serving the Willamette Valley. Therefore, if the above conditions are met, a charter will be issued for the Western Oregon PCA.

It is FCA’s obligation to assure, to the extent possible, that the incorporators of the proposed association have as many facts at hand as possible to assist them in making a decision. FCA is not able to take into consideration any intangible differences inherent in dissimilar agricultural areas, so its evaluation of any alternative proposals is limited only to financial factors. FCA, however, does encourage the incorporators to actively indentify and consider all factors impacting on alternatives. The agency considered the last proposal presented by Central Oregon as an economic alternative. The analysis makes the assumption that Central Oregon’s most recent proposal would still be in effect, although, no contact has been made with Central Oregon to determine this. The Central Oregon PCA could reject or alter any proposal placed before it. With this as a basis, FCA proceeded to make an analysis of the proposal presented in 1983 by Central Oregon, updated with Central Oregon’s 5 year financial projection current as of late 1983 and based on their March 31, 1984 balance sheet.

The current FCA analysis of the Central Oregon proposal, if now implemented, shows net savings to the borrower over the new charter proposal of 0.4 percent in interest costs. In its original proposal, Central Oregon would have accepted Willamette PCA’s class 1 and 2 loans with a provision that Central Oregon would have up to 120 days to inspect the Willamette PCA loans and reject those not meeting Central Oregon’s credit standards. Central Oregon proposed an interest spread of 1.00 percent over the lending rate to its own borrowers. Using Central Oregon’s current spread to its own borrowers of 0.6 percent would mean a spread of 1.6 percent to the Willamette members. This is compared with the new Western Oregon PCA, which proposes a 2 percent spread. Additionally, if arrangements were made with Central Oregon for its purchase of the loans on the same basis as is contained in the Western Oregon proposal, i.e., that the loans would be participated in the pool loan program on a 90 percent basis, the interest rate that the Willamette area borrowers would pay would still be 0.4 percent below the interest rate proposed to be charged by the Western Oregon PCA.

The FCA projection of the Western Oregon PCA indicates that the proposed PCA will generate only $81,000 in risk funds by the end of 1984 and $564,000 by the end of 1988. (This projection assumes no loan losses for 5 years.)

The Central Oregon proposal would have resulted in over $6 million in risk funds at the end of 1984 and approximately $9.5 million at the end of 1988. This would be a financially strong PCA.

FCA’s study on the viability of the proposed Western Oregon PCA indicates it has a chance of success if the assumptions on growth and loan losses are correct. However, it is estimated that it will take longer than 5 years before the proposed PCA can consider reducing its dependency on the district pool and begin normal lending operations.

Farm Credit Administration

May 4, 1984

Mr. George Van Leeuwen, Chairman

Board of Directors

Willamette Production Credit Association

P.0. Box 590

Salem, OR 97308

Dear Mr. Leeuwen:

The November 25, 1983 credit examination of the Willamette Production Credit Association has been completed. The results of this examination are summarized in the enclosed report.

After the adjustments reflecting the results of the examination are made to the association’s financial statements, the following significant facts are evident:

1. The association’s capital stock is impaired.
2. The association is in default on its loan from the Federal intermediate credit bank and is insolvent.
3. If the association resumes its program of retiring capital stock and participation certificates in excess of the amount needed to capitalize a borrower’s loan, the association’s debt-to-capital ratio will exceed the 10 to 1 limit permitted by law.

In recognition of these facts, the board has requested that the Governor of the Farm Credit Administration approve the board’s resolution to place the association in voluntary liquidation.

As you are aware, the lawsuit, Van Leeuwen, et al., v. Farm Credit Administration et al., is pending in United States District Court, District of Oregon. Currently, the Farm Credit Administration is under a restraining order that prevents the Agency from approving the request to place the association in voluntary liquidation. The court has scheduled a trial date of May 16, Í984. FCA intends to file a motion for a summary judgment by May 18,1984, and will request that the trial date be delayed pending a decision on that motion.

If the new association is chartered, borrowers from the Willamette PCA whose loans are classified “Acceptable” or any other borrower accepted by Western Oregon PCA may voluntarily become members of the new association. This action must be evidenced by each borrower’s executing a membership agreement with the Western Oregon PCA. This agreement must provide the borrower with an explanation of his/her rights and liabilities as a borrower/stockholder of the Western Oregon PCA. Prior to becoming stockholders and executing a membership agreement, all prospective stockholders shall be given a pro forma financial statement of the Western Oregon PCA.

This statement can be prepared on the assumption that_Willamette PCA loans classified “Acceptable” will be transferred to the new production credit association. The statement will be footnoted in explain the assumptions used in its preparation. Thereafter, borrowers shall be provided financial statements of the association at least semiannually.

The lawsuit can only be terminated by a dismissal or by the court’s entering a judgment. FCA is prepared to move to a judgment but will agree to a dismissal of the action with prejudice against the plaintiffs. In connection with the dismissal, FCA will approve the action of the board to place the Willamette PCA in voluntary liquidation.

Sincerely,

/s/Donald E. Wilkinson

Donald E. Wilkinson

Governor

Enclosure

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

GEORGE VanLEEUWEN, HERBERT C. COLEMAN, WILLIAM A. KESSI, ED AMMON, and FRED KASER, Plaintiffs, THE FARM CREDIT ADMINISTRATION; DONALD J. WILKINSON; THE FEDERAL INTERMEDIATE CREDIT BANK OF SPOKANE, WASHINGTON; LARRY K. BUTTER-FIELD; TWELFTH FARM CREDIT DISTRICT; and RONALD BOKMA, Defendants.

Civil No. 83-1413-PA

May 15, 1984

ORDER

Based upon the stipulation of the parties filed herewith, this action is dismissed with prejudice and each party will bear its own costs and attorneys’ fees.

DATED this 15th day of May, 1984.

/s/Owen M. Panner

Owen M. Panner

United States District Judge

Presented by:

/s/Jack G. Collins

Jack G. Collins, Asst. U.S. Attorney

Attorneys for United States