Full opinion text
MEMORANDUM AND ORDER WILLIAM K. THOMAS, Senior District Judge. Late in the afternoon of March 18, 1980, the Federal Home Loan Bank Board (FHLBB or Board) appointed the Federal Savings & Loan Insurance Corporation (FSLIC) as receiver for Washington Federal Savings and Loan Association of University Heights, University Heights, Ohio (Washington Federal). In its resolution (80-181) appointing the receiver, the Board determined that grounds existed for the appointment pursuant to section 5(d)(6)(A) of the Home Owners’ Loan Act of 1933 (“HOLA”; 12 U.S.C. 1464(d)(6)(A)), specifically: (1) Washington Federal is in an unsafe and unsound condition to transact business in that it is unable to meet its liabilities or obligations; and (2) the assets of Washington Federal have been substantially dissipated due to violations of law or regulations and to unsafe or unsound practices. Later on March 18, by resolution 80-182, the Board authorized the FSLIC as receiver for Washington Federal to sell and transfer certain assets and liabilities to Broadview Savings & Loan Company (Broadview) memorialized by a purchase and assumption agreement. In the same resolution, the Board authorized the FSLIC as receiver to enter into an agreement of sale with the FSLIC in its corporate capacity, pursuant to which the FSLIC as receiver would sell to the FSLIC as corporation certain assets. The corporation would assume certain liabilities of Washington Federal which Broadview did not purchase or assume. Resolution 80-183 adopted by the Board authorized the FSLIC as corporation to enter into an indemnity agreement with Broadview and the agreement of sale with the FSLIC as receiver. Representatives of the Board and the FSLIC as receiver on March 18 served “papers” on Washington Federal (presumably 80-181), and employees of Broadview on March 18 took over the main office and branches of Washington Federal on the same day. Washington Federal filed this action on March 27, 1980 and its amended complaint on April 22, 1980. It rests jurisdiction in part on 12 U.S.C. § 1464(d)(6)(A). In its first cause of action, Washington Federal alleges that the findings of the Board on which the Board based the appointment of the FSLIC as receiver “were clearly erroneous and unsupportable and there were no other facts on March 18, 1980 justifying the FHLBB’s action.” Washington Federal asserts that: The ex parte action of the FHLBB in declaring an involuntary receivership for Washington Federal and appointing the FSLIC as the receiver was arbitrary and unreasonable, not supported by valid findings or motivated by proper purposes, and in excess of the FHLBB’s authority under 12 U.S.C. § 1464(d)(6)(A). Washington Federal seeks a mandatory injunction directing the FHLBB to remove the FSLIC as receiver and to dissolve the receivership and ordering the FHLBB, the FSLIC and Broadview to rescind all actions taken pursuant to the receivership, to reconstitute Washington Federal’s business, and to restore to Washington Federal and its depositor owners all of their assets improperly taken from them. Defendants Bank Board and the FSLIC in their answer, filed June 6, 1980, denied all allegations not admitted to be true and requested dismissal of Count I of the amended complaint. On the same day, defendants moved to dismiss Counts II through X, inclusive, of the plaintiff’s amended complaint. This court on August 8, 1980 severed Count I from Counts II through X, ordering the separate trial of Count I. On December 18, 1980 this court entered a memorandum and order which established the standard of judicial review and placed the burden of proof. In part, it was concluded: The ultimate issue in the trial of this ease is whether Washington Federal has sustained the burden of proving that the Board abused its discretion in reaching its “opinion” that a receiver should be appointed. . . . Manifestly, if Washington Federal shows by a preponderance of the evidence that the Board acted. arbitrarily and capriciously, then it has established that the Board abused its discretion. Testimony and exhibits were received at the trial, which lasted from January 5 through February 12, 1981. Following written submissions and oral argument, the case was taken under advisement on May 25, 1981. I. A. Under section 706 of the Administrative Procedure Act, 5 U.S.C. § 706, a court that reviews agency action is directed to “review the whole record or those parts of it cited by a party.” Citizens To Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), a review of informal agency action of the Secretary of Transportation, prescribes that the “whole record” shall be “compiled by the agency” and that this is the “basis for review required by § 706 of the Administrative Procedure Act.” Id., at 419, 91 S.Ct. at 825. The scope of judicial review determined to apply in this case coincides with the language of section 706(2)(A): The reviewing court shall— (2) hold unlawful and set aside agency action, findings, and conclusions found to be— (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; .... Nevertheless, section 706’s requirement that the administrative agency compile the administrative record, interpreted in Overton Park, is a general statute that does not apply here. Instead, 12 U.S.C. § 1464(d) (6)(A), under which Washington Federal brings this action, controls. In relevant part it provides: In the event of [the appointment of a conservator or receiver for a savings and loan association], the association may, within 30 days thereafter, bring an action in the United States district court ... for an order requiring the Board to remove such conservator or receiver, and the court shall upon the merits dismiss such action or direct the Board to remove such conservator or receiver. As seen, the statute gives no guidance concerning the nature or composition of a judicial record that is developed in an action brought under this provision; and there has been no prior judicial interpretation of this language. Provision for a district court action perforce allows for the calling of witnesses and the development of a factual judicial record. What, then, is the permissible content of the administrative record developed in an association action challenging the Board’s appointment of a receiver? In its memorandum of December 18, this court required the Board to “assume the initial burden of placing on the record the factual results of any investigation or analysis of the financial condition and business practices of Washington Federal and any other findings upon which the Board based its opinion.” In effect, the Board was directed to call witnesses and produce exhibits that would reconstruct the administrative record. The parties agree, and it is ruled, that the administrative record should include the transcripts of the verbatim tapes of participants’ oral statements and proceedings of the Board meetings held on March 14, March 17, and March 18, 1980. Beyond that, there is dispute over the admissibility of oral statements as part of the administrative record. During the trial, plaintiff challenged the inclusion in the administrative record of the testimony of staff members recounting any briefing session held preceding a Board meeting and attended by Board members, their assistants, and staff members. The issue arose during the testimony of Thomas Timmins, deputy director of the Board’s Office of Examination and Supervision (OES). It was ruled, “Mr. Timmins may testify and others may testify in terms of what went on in the briefing session... . ” Thereupon, Mr. Timmins was permitted to testify as to his input into the briefing session on the morning of March 14, 1980, both as to what he said and also as to any documentary materials which he took to the briefing session. While Mr. Timmins and other persons attending the briefing sessions were permitted to testify as to their own statements, none was permitted to report what others said at the briefing session. In a post-trial brief, Washington Federal specifically argues that oral recollections of Bank Board witnesses who testified as to what they said at the briefing sessions “are not a part of the administrative record and may not form the basis upon which the bank board acted.” Defendants counter by saying that the authorities reviewed demonstrate that in informal decision-making, an agency has the right to rely on its staff in compiling information, and that the information reviewed by staff prior to the( staff’s communication of its recommendations to the decision makers constitute an appropriate part of the administrative record. Washington Federal relies primarily upon language from Home Box Office, Inc. v. F.C.C., 567 F.2d 9, 54 (D.C.Cir.1977), which Washington Federal says defines the “administrative record” as the “body of material — documents, comments, transcripts, and statements in various forms declaring agency expertise or policy — with reference to which [the agency decision-maker’s] judgment was exercised.” While the court thus defined the administrative record, it is important to note that at another point in the opinion, in part IV, “Ex Parte Contacts,” the court makes it clear that even “ex parte comments” to commissioners may be an element of the administrative record. After observing that it could vacate the rules under review and “remand them to the Commission for consideration de novo,” the court noted as one of the defects in this approach that “it is not possible for us to expunge from the Commission’s collective memory what was said to it ex parte.” Id., at 58. Deciding that “it would be useful to remove any possible effect of the ex parte contacts in these proceedings,” the court remanded the record to the Commission ... for supplementation with instructions “to hold with the aid of a specially appointed hearing examiner, an evidential hearing to determine the nature and source of all ex parte pleas and other approaches that were made to” the Commission or its employees after the issuance of the first notice of proposed rulemaking in these dockets. [Citations omitted.] Id. An evidential hearing “ ‘to determine the nature and source of all ex parte pleas and other approaches that were made to’ the Commission or its employees” conveys a pertinent message. Provided the ex parte comments of non-agency persons to members or employees of an agency are disclosed and identified, they may become part of an administrative record in an informal agency action. Broader than this court’s ruling, Home Box Office supports this court’s ruling. Here, only comments by staff members (no outsiders) to agency Board members are held to be part of the administrative record. As ruled at trial, and now affirmed, staff comments to Board members at any briefing session, limited to what the staff member said, are included as part of the administrative record. The reasoning and holding of Home Box Office is also broad enough to approve inclusion in the administrative record of identified oral exchanges between staff members and chairman Janis. Applying the foregoing ruling, this court holds that the administrative record includes the portions of the trial record which are designated in Appendix A. The designated pages have been reproduced and are filed in the case. The court further holds that the administrative record includes the exhibits listed in Appendix B. These exhibits are classified generally as (1) documents identified by one or more Board members as having been seen by him; (2) documents identified as having been sent to the Board; (8) resolutions adopted by the Board; (4) transcripts of Board meetings; and, (5) other documents relevant to actions taken by the Board. B. During the direct examination of Charles Glueck, chief executive officer of Washington Federal, a defense objection to a question led to a broad discussion of plaintiff’s claim that the Board staff excluded from the administrative record and the Board’s consideration information relating to a relevant factor, articulated as “the true condition of Washington Federal.” Counsel for Washington Federal asserted: As I understand the court’s comment from the court’s ruling, there has been a restriction placed on Washington Federal as to what information Washington Federal submitted to the Board. After the court assured counsel that this was not the case, plaintiff’s counsel continued: I want to go beyond oral or written submissions, and that is the question I want to address. This Court is hearing this case and judging whether the Federal Home Loan Bank Board considered the relevant factors and whether or not it abused its discretion, and that language comes right out of the Citizens of Overton Park case, and the first question is whether the Board considered the relevant factors. * * * * * * It was the obligation of the Federal Home Loan Bank Board in its regulatory process and before making a decision to make sure that it had the relevant factors before it. Now, I think maybe that is the critical legal issue insofar as the testimony will show that just about every piece of information was fed to the Board, but I think we should make it clear that we want to be able to show to this court the true condition of Washington Federal, and then it is up to this court to conclude whether or not that condition was adequately described to the Board. Now, that involves two things: First of all, whether the staff took the information which it had in its possession and gave it to the Board; and second, whether the staff made an adequate investigation in the first place to know the condition, so it could describe it to the Board; and that is the issue. Defendants’ counsel did not immediately respond to the foregoing statements of plaintiff’s counsel. In another context, counsel for the defendant took a position that is generally responsive to the quoted comment of plaintiff’s counsel. Defense counsel stated: .. . There [Overton Park, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136] the Court was faced with a statute which required the Secretary to make all possible planning to minimize harm; and there is statutory language and statutory direction and statutory prerequisites to a particular finding on the part of the Secretary of Transportation. There was another statutory direction in Volpe that the Secretary could not authorize the use of funds if a “feasible and prudent” alternative exists. So that I think, I think that the question of the standard of review in a particular agency action must look to the statutory framework and the purposes and whether or not specific statutory directions or prerequisites are established before such action can be taken. And if we look to the statutes governing here, 12 U.S.C. [§] 1464(d)(6)(A) and by stark contrast to the EPA context, and stark contrast to the kind of finding that these statutes require with respect to the Secretary of Transportation in the context of the Volpe case, the statute here is extremely broad. For an opinion to be upheld, only there be need for a ground for the appointment of a receiver, and those grounds of course are set forth in the statute just mentioned. In final argument, defendants’ counsel added to the same argument. He said: Your Honor, I think that we return to the relevant factors. We at no time have said — or if the Plaintiff believes we’ve said, we should like to clarify at no time did we intend to say that it isn’t for the Court to say what the relevant factors are. We say that there is only one way a statute can be examined, and that is through the Court. The Court, of course, will say what the relevant factors are, and the Bank Board submits that the guideline for the Court must be the statute. In this case, 12 U.S.C. [§] 1464(d)(6)(A) is the relevant statute, and there is no relevant consideration except one, and that is[,] was there a ground, or were there more than one ground for an appointment of a receiver for Washington Federal on March 18, 1980. Section 1464(d)(6)(A) lists five grounds for appointment: The grounds for the appointment of a conservator or receiver for an association shall be one or more of the following: (i) insolvency in that the assets of the association are less than its obligations to its creditors and others, including its members; (ii) substantial dissipation of assets or earnings due to any violation or violations of law, rules, or regulations, or to any unsafe or unsound practice or practices; (iii) an unsafe or unsound condition to transact business; (iv) willful violation of a cease-and-desist order which has become final; (v) concealment of books, papers, records, or assets of the association or refusal to submit books, papers, records, or affairs of the association for inspection to any examiner or to any lawful agent of the Board. The full statutory scheme displays a clear intent to confine the basis upon which a receiver may be appointed to “one or more” (emphasis added) of the five listed grounds. The next sentence bestows on the Board “exclusive power and jurisdiction to appoint a conservator or receiver.” (Emphasis added.) The grant of exclusive power, however, is not construed to convey to the Board absolute power to decide whether a ground exists for appointing a receiver. As this court has ruled, this court must decide whether the Board abused its discretion in reaching its opinion that a receiver should be appointed. Under Overton Park, supra, this court “must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” It is essential to weld Overton Park’s “consideration of the relevant factors” and the “exclusive power” to appoint a receiver if one or more grounds exist, as section 1464(d)(6)(A) directs. Here are the welding rules. Factors are only relevant if they may be subsumed under “one or more” grounds that form the basis of the Bank Board’s “opinion” to order a receivership. A relevant factor may be considered only in connection with the ground or grounds under which it is subsumed. As seen earlier, the Board determined that two grounds existed for the appointment of a receiver for Washington Federal: (1) Washington Federal is in an unsafe and unsound condition to transact business in that it is unable to meet its liabilities or obligations; and, (2) the assets of Washington Federal have been substantially dissipated .due to violations of law or regulations and to unsafe or unsound practices. It is timely to settle one relevant factor now. The “true condition” of Washington Federal is a factor that is relevant to and is subsumed under ground (1). Taking the next step, the relevant time period of the Association’s true financial condition must be set. It is concluded that while earlier months provide a pertinent background to ascertain the Association’s true financial condition, the month of March 1980 is the time frame in which the true condition must be appraised. To show the background of the Association’s true financial condition, the court has received into the judicial record evidence of Washington Federal’s participation in the Government National Mortgage Association (GNMA or Ginnie Mae) standby or forward commitment market. The judicial record (the trial record) includes: Board exhibits and testimony of witnesses called during the Board’s initial case; exhibits of Washington Federal; and the testimonies of Charles Glueck, the chairman of the board of directors and chief executive officer of the Association, and Robert C. Sterbank, the chief financial officer of the Association. In addition to attempting to show Washington Federal’s true financial condition, the plaintiff offered testimony to challenge the credibility of statements made by Board staff members at the meetings of the Board. The Board then called witnesses to rebut plaintiff’s witnesses. The court has received into the judicial record evidence to explain the administrative record, e. g., evidence which to this court is “highly technical,” Asarco, supra, at 1160. More specific examples are the testimony and exhibits related to GNMA forward commitments, conventional mortgages, GNMA certificates or securities, and trading and borrowing practices in the secondary mortgage market. II. A. The FHLBB requires periodic examinations of savings and loan associations insured by the FSLIC. See 12 C.F.R. § 563.-17 — 1. Washington Federal was examined as of May 30, 1978; the report was filed with the Board Supervisory Agent in Cincinnati, Ohio on September 15, 1978. The Report Summary first states: The association is very active in the secondary mortgage market of GNMA mortgage securities. Its procedures, in part, include the giving of standby commitments to others for a fee and the receiving of standby commitments from others for a fee. The summary concluded: To date, the results of these activities have substantially enhanced the association’s operations and its net worth position. In March 1971 when Board chairman Glueck assumed the day-to-day management of the association, .. . the philosophy of the association’s operations was changed to include activities in the secondary mortgage market. Further, the report disclosed that the Association’s secondary market transactions in the years 1971 through 1974 involved the purchase and sale of FHA-VA mortgages. As a participant in the Ginnie Mae market “approximately since 1975,” according to Mr. Glueck, Washington Federal had “outstanding commitments” of $140 million at the beginning of 1976. Chairman Glueck disclosed this figure in a letter to supervisory agent Duffus, dated June 2, 1976. Mr. Glueck also made projections of the commitments declining to $85 million in 1980. Referring to these projections, he remarked: This program, as exhibit C shows, will allow us to peak this year in our secondary market activity and in the next four years reduce it dramatically, while allowing us to reach the reserve position required prior to our 25th year. The “dramatic reduction” in the Association’s secondary market activity did not occur. As reported in the 1978 examination report, as of May 31, 1978 GNMA buys totaled $694.5 million while GNMA sells totaled $391.5 million. The net was $303 million. The 1978 report reveals that from August 1977 through July 1978 the Association received standby commitment fees (2.0 percent) less commitment fees (0.5 percent) paid to others to standby netting the Association at $8,485,340. Fee income is reported as part of “Loan Fees” in the Association’s semi-annual financial reports to the Board. For the semi-annual period ending 12/31/78, loan fees were $2,096,233; for the semi-annual period ending 6/30/79, loan fees were $1,341,556; and for the semi-annual period ending 12/31/79, loan fees were $921,270. The Association’s reported actual “Net Fee, Income Secondary Market” to have been $7,009,000 for calendar year 1978 and $2,071,000 for calendar year 1979. After June 1, 1979 when the Forward Commitment Regulation, 12 C.F.R. § 563.17-3, was put into effect, the Association received no fee income. In a section of the 1978 report, “Management’s Philosophy,” written by Board chairman Glueck, he stated: As a general rule, we commit ourselves to standbys two years in advance and hedge and overhedge within á year of the time we can be called on to fund standbys. In addition to that positioning, we deal in the cash market. Noting that the Association’s top four officers “devote in excess of 50 percent of their time to the secondary market operations” and that others are “tracking and reflecting the position of our secondary market operations on a minute-to-minute basis,” he added: Since “ours” is a philosophy of position, not one of anticipating markets, we constantly are updating our position, setting levels at which we profit buying and selling. After stating “hedges can be acquired at almost any reasonable level as long as you are willing to pay the appropriate fee,” he concluded: [T]he greatest fear in a forward commitment program is that interest rates will rise above the commitment level, therefore exposing the committor to excessive losses. We eliminate this possibility by (1) budgeting losses of a reasonable nature to maintain position, (2) hedging every commitment to buy, limiting to reasonable amount the differential between our forward commitment and what someone else must pay us in the hedge, and (3) budgeting and committing funds in the way of fees to overhedge our position creating the opportunity to be very active in the fluctuating cash market without any possibility whatsoever of a loss in the cash market. The examiner attached schedules to the report to demonstrate the Association’s methodology in the secondary mortgage market operation. These schedules were explained by Mr. Glueck at trial; and he demonstrated actual hedging, overhedging and cash market transactions. Forwarding the examination report to the Association on September 27, 1978, supervisory agent Duffus recommended: The Association’s report as of August 31, 1978, shows a reduction in the volume of net commitments to buy. We recommend that you continue to cut back on the secondary market operation, but at a faster rate, in view of the possibility of the adoption of a regulation which would substantially curtail the Association’s authority to make commitments to buy. You will of course, be notified promptly if any such limit is adopted. As predicted by agent Duffus, the FHLBB on November 28,1978 published a proposed rule “regarding forward commitments to purchase securities.” The summary of the rule stated in part that the Board proposed to regulate forward commitments by FSLIC-insured institutions, that “Regulatory action [was] needed because some institutions [were] incurring losses by engaging in forward commitments in a speculative manner” and that the new regulation “would limit the dollar amount of outstanding forward commitments.” Washington Federal submitted to the Board a ten-page letter of comments on the proposed forward commitments rule. Noting that “[w]hile most of the proposed provisions are certainly appropriate,” the Association stated that “some of the accounting provisions are inappropriate, and would have a detrimental effect upon housing and home financing, and upon the operations of prudent and knowledgeable insured institutions.” As a representative of the United States Savings and Loan League, Mr. Glueck met with the FHLB Board staff members in Washington in early January 1979. He repeated in greater detail the Association’s views set forth in the letter. 12 C.F.R. § 563.17-3, effective June 1, 1979, is a revision of the proposed regulation of November 22, 1978. The general limitation in subparagraph (c)(1) states in part: An insured institution may make forward commitments to purchase securities, subject to the limits in paragraph (c)(2) of this section, if that activity is conducted in a safe and sound manner. An example of an unsafe and unsound practice which may preclude further investment under this section is an inability to fund commitments when due. Section 563.17-3(c)(2), “Percent of Assets,” limits an institution’s outstanding forward commitments to purchase securities to “ten percent of its assets if net worth is less than five percent of assets, or 15 percent of assets if net worth is five percent or more of assets.” In its general comments accompanying the regulation, the Board, in effect, added a grandfather clause. It stated that institutions which have exceeded those percentages at the time these regulations become final shall be precluded from further activity in this area until such time as they are within the limits set by subparagraph (c)(2). As of June 1, under the regulation, the Association was limited to $29.9 million in outstanding forward commitments (fifteen percent of its 5/31/79 assets of $199 million). Its $727 million in forward commitments on June 1, therefore, exceeded the limitation by $697 million. Washington Federal was “grandfathered” as to this excess. The regulation did not limit the buying of forward commitments from others to stand by the Association (“sells” or “hedges”). On July 6, 1979 Mr. Glueck and Mr. Sterbank met at the Home Loan Bank in Cincinnati with supervisory agent Duffus and Dwight Arnall, regional director of the OES whose district at that time- included the Cincinnati bank. At the meeting, Mr. Glueck presented a plan which projected compliance with the forward commitment regulation within five years. Washington Federal asked for a waiver of the forward commitment regulation during this five-year period. At the end of the meeting, Mr. Arnall expressed his opposition to the waiver request but promised to take it up with his superiors in Washington. A week after the July 6 meeting, Mr. Glueck received a telephone call from supervisory agent Duffus asking him to submit a written waiver request. The Association submitted its waiver request to the supervisory agent on September 7, 1979. The request read: In order to bring our operations within the parameters of the regulation without causing undue harm, we need: (a) Authority to exercise our judgment in exceeding regulatory limits on advances and other borrowed money. (b) Authority to sell forward commitments and progressively reduce both the gross and net outstanding commitments according to the supporting schedules submitted herewith. Enclosed were “six (6) sets of pro-forma balance sheets and income statements, each set based on a different set of economic assumptions, and a description of how the tools would be utilized under each ‘scenario.’ ” These projections through 1984 were said to “represent a yardstick by which our actual performance can be measured.” Supervisory agent Duffus on September 25, 1979 recommended that the “Association’s request be approved subject to the following limitation, or conditions.” These conditions provided for close monitoring of the Association and its plan and the right to rescind approval, to modify conditions or to impose additional conditions. In a final paragraph in support of his recommendation, Mr. Duffus concluded: To allow a maximum time frame of perhaps as much as five years in which to work out of its present situation and to bring itself into full regulatory compliance does not seem like too high a price to pay for having a much stronger association than would otherwise be the case. Ten days after the July 6 meeting of Mr. Arnall and Mr. Glueck, Mr. Arnall wrote a memorandum to the FSLIC Deputy Director in which he requested the assignment of a different examiner to perform the “next regularly scheduled supervisory examination ... programmed for the latter part of this month.” He noted that “the Association has asked for supervisory forbearance in complying with the new regulations on forward commitments.” He asked that the examiner “rigorously analyze [enclosed] projections and the assumptions upon which they are based and advise us whether they are reasonable.” He further asked that the “examiner give us his evaluation of the additional loss exposure to the Association of issuing an additional $565 million of GNMA standby commitments as requested.” Robert J. Klancher was assigned the examination. On August 31, 1979 he submitted an interim report; on October 29, 1979 his full report of examination was filed in the office of the supervisory agent. The five-year projections which Washington Federal attached to the September 7, 1979 waiver request letter were discussed in the interim report and the report of examination, and they were attached to the report of examination. Noting that “the Association specifically asked that it be allowed to gradually reduce its outstanding commitments rather than being required to comply immediately,” the examiner listed two Association reasons: One of the principal reasons is to enable the Association to sell standbys which will generate an amount of fee income that will at least offset the fee expense incurred to buy a standby. Both the interim report and the final report stated that “management considers [it] equally important ... to be able to maintain the good working relationships with brokers which have been established over the years.” As a related matter, both reports stated: The association is finding it increasingly difficult to hedge its present commitments because the regulation has caused a reduction in the Association’s activities in this area which, in turn, has resulted in fewer broker contacts. The two reports disclosed, as phrased in the final report: Under the gradual reduction program the Association proposes to sell standbys to purchase $405 million GNMA securities, and to buy standbys to sell $500 million in GNMA securities over the next five years based on [an indicated schedule]. The report continued: In order to demonstrate the need for a temporary exemption from the commitment limitation regulation, the Association has prepared a series of six operating and balance sheet projections covering a span of five years. The interim report found that “the projections were deemed reasonable.” The final report of examination merely stated that “the basic assumptions were reviewed for reasonableness.” Examiner-in-charge Klancher concluded his “comments” in the report of examination with this caveat: The projection calculations, however, were based on the assumption that the Association would be permitted to proceed with its proposed secondary market activities in the not-too-distant future. Since no standbys are being sold, it appears that the final income figure will be considerably short of what was projected. Later events were to record that the request for waiver of the forward commitment regulation during the five-year period covered by Washington Federal’s projections was not formally brought to the Board’s attention until March 14, 1980. The Klancher “comments” in the report of examination refers to the request of the Association “to exceed borrowed money limitations,” a matter also brought before the Board on March 14. He stated: The Association is also requesting that, if circumstances dictate, it be allowed to exceed borrowed money limitations. This would give the Association, during periods of unfavorable market conditions, the latitude to avoid incurring losses by borrowing money to purchase GNMA securities for portfolio rather than funding through a sale in the open market. The Association has already begun to employ this strategy and has substantially increased its GNMA portfolio as shown on p. 11. B. Chief financial officer Sterbank testified that Washington Federal entered into several types of borrowing: [T]here was some borrowing from the Federal Home Loan Bank, and we borrowed from local commercial banks, and we did reverse repurchase agreements. I would classify them as regular reverse repurchase agreements. From the beginning of November until the Association was put into receivership, it engaged in yield maintenance dollar reverse repurchase (repo) agreements rather than in “regular reverse repos”. A letter from the Association’s private accountants, Peat, Marwick, Mitchell & Company, dated October 26,1979, relates to yield maintenance transactions. The letter was received in evidence not for the truth of its content but as an event that preceded the Association’s use of this type of dollar reverse repo. Mr. Glueck testified that he followed* “the accounting treatment of which [he] had received advice from Peat, Marwick, & Mitchell.” Attached to a report letter to supervisory agent Duffus, dated December 20, 1979, was a summary of “November and December Dollar Repurchase Transactions” (yield maintenance variety). These resulted in borrowings of $69,194,145.17 in November and $54,433,584.20 in December, or a total of $123,627,729.37. The November 30, 1979 monthly report showed an addition of $60,-234,779 in Ginnie Maes to the Association’s portfolio. The monthly report for December 31, 1979 showed additional GNMA’s in the Association’s asset portfolio of $64,103,-005. The letter of December 20 provided projections for the year 1980 based on cost levels using yield maintenance provisions as explained. The “estimate of the worst possible scenario for 1980 based on the present facts” projected net worth decreasing from $12,750,000 in 1979 to $8,263,000 in 1980. The letter noted that “market conditions made the last six months the worst time for Washington Federal to withdraw from its secondary market operations;” that its position had eroded; and that the “results of the erosion [would] not be very apparent until 1980.” The Association then expressed the hope “that the Federal Home Loan Bank [would] see fit to give [them] the variances [they] have requested, that, in [their] opinion are so necessary for an orderly winding down of these operations.” On January 18, 1980, supervisory agent Lawrence B. Muldoon wrote chairman Glueck concerning a meeting held at the Federal Home Loan Bank in Cincinnati on January 14. Present from the Association were Mr. Glueck, Mr. Sterbank and Mr. Lemley; present from the Bank were Mr. Muldoon, Mr. Duffus, and three other representatives. The letter noted that the Association had been requested to submit “current and up-dated information to support its request for waiver of the forward commitment regulation and other borrowing limitations.” Additional specific information comprising five categories and answers to specific questions were requested in the letter. On February 12,1980 the Association forwarded to President Thiemann, Federal Home Loan Bank of Cincinnati, “all the data requested by Mr. Muldoon [in his letter of January 18].” While the letter submitted a 1981 projection as had been requested, the principal data was supplied in response to the five itemized requests contained in Mr. Muldoon’s January 18 letter. In response to the first question, a “summary of commitment position — 12/31/79” showed a total position of $433,500,000 in outstanding commitments. Also a schedule giving “details of commitment position — 12/31/79” was supplied. The commitments were separately identified and described. In answer to question 2, a schedule was attached entitled “Details of dollar reverse repurchase agreements entered into as of December 31, 1979.” The principal balance (face amount) of these repos totaled $152,-427,788.21. Each dealer was identified, and each Ginnie Mae certificate was listed with the amount borrowed (sales proceeds) and other details given with reference to each security. In essence, questions 3 and 4 of Mr. Muldoon’s letter of January 18 sought documentation of a typical transaction and “how the Association was able to borrow at the low rates shown in the December 20, 1979 letter.” In response, detailed schedules were furnished. Among other things, a “cost of money” schedule indicated that the weighted average [interest] rate of “regular reverse repos” was 13.671 while the weighted average [interest] rate of dollar reverse repos was 10.197. Another schedule supplied, as requested, an example of accounting for GNMA dollar reverse repos. The example reflected a $1 million GNMA transaction with a particular broker. The schedule detailed each accounting step and also recited the specific accounting entries. The court allowed Mr. Glueck to testify at some length in explanation of these accounting steps. It is evident that this schedule and the other schedules attached to Washington Federal’s letter of February 12 are detailed responses to the specific questions of the Muldoon letter of January 18, 1980. In the letter of February 12, 1980 to President Thiemann of the Federal Home Loan Bank of Cincinnati, Mr. Glueck noted: Because of the time elapsed since the submission of our plan to wind down our secondary market operation and the resulting further exposure incurred together with further deterioration of market conditions, that plan would no longer be effective. He then went on to say: Our commitments must be funded, financed and held until such time as market conditions allow us to liquidate them in an economical manner. We are enclosing all the data requested by Mr. Muldoon and cannot emphasize enough that these submissions require our presence and discussion with your staff to promptly reach conclusions that will enable us to avoid what could become a very serious problem. This request for a meeting led to one in Cincinnati on February 28. C. As a result of reassignments of regional directors, on February 11 Edward O’Connell became director of the region which includes Cincinnati (Region 2). Between February 11 and February 27, the date on which he met with OES deputy director Thomas Timmins prior to his departure for the meeting with Washington Federal representatives in Cincinnati, Mr. O’Connell had read the following material about Washington Federal: —Reports of Examination of May 30, 1978 and July 28, 1979. —Memorandum of Dwight L. Arnall, Regional Director, January 9, 1980, to Charles G. Myers, Director, Office of Finance, asking him to comment on “the merits of the Association’s request” for “a waiver of the regulations limiting forward commitments in the amount of FHLB advances and other borrowed money.” —Attachments to the Arnall memorandum: Washington Federal letter of September 7,1979 requesting forward commitment and borrowing waivers and its projections of five-year plan to wind down its forward commitments. Supervisory agent Duffus’s letter of September 25, 1979 recommending the granting of the requests for waivers subject to four conditions. Washington Federal’s letter of December 20, 1979 and projections. Examiner Klancher’s interim report of August 31, 1979 reviewing the projections of the waiver request and deeming them “reasonable” and the computations “accurate.” Portions of the May 30, 1978 report of examination describing Washington Federal’s secondary market operations in GNMA forward commitments. —Charles Myers memorandum to Dwight Arnall of February 8, 1980 (finding “the Association’s request to have no merit”). —The Association’s February 12, 1980 responses to supervisory agent Muldoon’s questions of January 18, 1980. Plaintiff argues that at the February 27 conference without any detailed review of Washington Federal’s commitment position or how it developed, O’Connell and Timmins decided that the solution for the Washington Federal situation would be a supervisory merger. This assertion is not supported by the evidence. As seen, the materials that Mr. O’Connell had read, for example the reports of examination, fully disclosed “Washington Federal’s commitment position [and] how it developed.” It is reasonable to assume that Mr. O’Connell relied on all the materials he had read in reaching a preliminary conclusion that there should be an FSLIC-assisted merger of Washington Federal. As for Mr. Timmins, he remembered “reviewing certain papers that Ed O’Connell brought with him to that meeting that we discussed.” When it was suggested that he “didn’t discuss with Mr. O’Connell any other possible solutions to Washington Federal on the 27th,” Mr. Timmins answered: Oh, I don’t know that we didn’t discuss other possibilities. I think we discussed what could have— for instance, we discussed the possibility of a receivership occurring, but as I recall, what the substance of our comments was, was that it seemed like the best solution to this developing problem would appear to be a supervisory merger. Mr. Glueck’s February 29 letter to President Thiemann indicated that, to their dismay, “the meeting [of February 28] opened with the conclusions expressed by Mr. Muldoon.”' It appears that Mr. Muldoon proposed an FSLIC-assisted merger. Mr. Glueck continued, “After the statement of position, we were allowed to discuss the submitted material and our analysis of potential cash and collateral needs, but it was apparent that this would be to no avail.” The material submitted at the February 28 meeting included a face sheet entitled, “Assumptions Used in Analysis of Potential Cash/Collateral Needs.” Three “assumptions” were listed: 1. Guaranty by F.H.L.B. to dealers covering “net cash required” (combination of letters of credit and additional advances). 2. Dealers continue to roll Dollar Reverse Repos. 3. Dealers accept FHA/VA loans for collateral as projected. Attached to the face sheet were three sheets, each entitled “Analysis of Potential Cash/Collateral Needs” for each of the years 1980, 1981, and 1982. As explained at trial by Mr. Sterbank, these attempted to review what amount of cash could conceivably be required under different market scenarios over the period of time illustrating that there was a — certainly an upper limit on the amount that we needed, and that by April 1982 there would be no assistance required. In the Association’s first letter of February 29, Mr. Glueck wrote, “The only comfort derived from the meeting was your personal assurance that the issue is not closed and that our submissions would get further consideration.” Apparently before he received either February 29 letter, Mr. Muldoon on February 29 wrote regional director O’Connell that consideration had been given “to all of the background data submitted by the subject Association on February 12, 1980 [the blue book], as well as at the meeting on February 28, 1980 with its management staff.” Mr. Muldoon made three recommendations: (1) that the FSLIC assume the Association’s outstanding forward commitments; (2) that the FHL Bank advance funds (secured by eligible collateral) “to permit the institution to fund additional margin calls and/or commitments due;” and (3) that thereupon “a merger of Washington Federal be accomplished on an assistance basis.” Back in Washington on February 29, Mr. O’Connell prepared his memorandum to file. Some factual statements and some opinions contained in the O’Connell February 29 memo of the February 28 meeting became part of or were the source of language in OES director Taylor’s memorandum of February 29, 1980, which he immediately circulated to each member of the Bank Board. These O’Connell statements and opinions will be assessed for factual support since the Taylor memorandum has been made a part of the administrative record. However, because this court is not hearing this case de novo, the court concludes that its function is limited to determining whether the O’Connell statement or opinion and the corresponding language in the Taylor memorandum is rationally based on fact found in the judicial record. The memorandum states: The Association’s problems relate to its speculation in the Ginnie Mae market. Forward commitments to purchase are approximately $432 million through June 1981. Based on the information we received, this Association does not have the capacity to fund commitments and meet .margin calls. The Association anticipates a $17 million margin call on Monday, March 3, 1980. This, the FHL Bank of Cincinnati says it will fund through a collateralized advance. The objective being a stop-gap measure to keep the Association “alive” until a solution to its problems can be arranged. Footnote No. 2 is related: The Association estimates it will need $97 million in cash between now and March 19, 1980. This consists of $17 million for a March 3, 1980 margin call and $82 million in funding requirements at March 19, 1980. The Association states it will need advances of $97 million or a letter of credit plus $11 million. The Association expressed concern that the securities dealers would be unwilling to enter into further reverse repurchase agreements absent a letter of credit from the FHL Bank of Cincinnati. The funding schedule prepared by Mr. Sterbank on March 6, 1980 and the “Cash Requirements for March 1980 Fundings” (PX 84), see Appendix C, substantiate the general accuracy of Mr. Connell’s statements concerning the Association’s estimates of its cash funding needs in March 1980. Thus, the O’Connell statements reflect the upcoming financial condition in March. Plaintiff argues: O’Connell’s assertion of “speculation” by Washington Federal in the Ginnie Mae market was based only on his meeting with Washington Federal and not on any interviews or in-depth review of Washington Federal’s secondary market operations. Plaintiff’s argument ignores the record. Prior to February 29, Mr. O’Connell had read the examination reports of May 30, 1978 and July 28, 1979 and their “in-depth” description of Washington Federal’s secondary market operations. The same secondary market operations descriptive material was attached to Dwight Arnall’s January 9 memorandum. He had read all the attachments. Thus he knew from the 1978 report that it was a part of Washington Federal’s “management philosophy” to “commit [itself] to standbys two years in advance and hedge and overhedge within a year of the time [it could] be called on to fund standbys.” From the same report he knew that management recognized with their “experience in [the] secondary market operations,” that “the area of risk is confined to the period of time between when we issue a standby commitment and cover it with a hedge.” He knew that it was management’s further opinion that “[s]ince part of the discipline is to not let these standbys get closer than one year to call before they are hedged, the cash flow risk is non-existent.” Contrary to this opinion, James Connolly opined, in effect, that it was speculative not to hedge simultaneously, but instead to hedge and overhedge a year after contracting for a standby forward commitment. Cross-examined by plaintiff’s counsel, Mr. Connolly testified: Q. Mr. Connolly, do you understand what Washington Federal meant when they used the word “hedge”? A. They could have called — and, I believe, according to Mr. Glueck’s testimony, you can call it anything you want, but it was not a hedge. Q. Mr. Connolly, we have to call it something. What do you want to call it? A. I’ll call it a separate speculative transaction. Q. I’m not going to call it that. A. Okay. This further exchange occurred: Q. Do you know any month, Mr. Connolly, in 1978 when the same result which you just described on page 25 was not true, that is, that every standby commitment was covered with a hedge? A. I know of no month; but if I can quantify that again by saying that you can enter into any transaction and you cannot wait one year and call it a hedge. Washington Federal did not offer any evidence to show that its “investment strategy” was not speculative. The closest its evidence came was Mr. Glueck’s testimony, “That was not the procedure we used,” when he was asked whether the Washington Federal Board specified that “there had to be hedges entered into on or about the time the standby commitments were contracted for.” He was more frank when, on November 25, 1977, he wrote: We have developed our secondary market business to the extent where we do not have a problem executing the above plan and find it very uneconomical to hedge more than twelve to fifteen months in advance. [Emphasis added.] Based on the administrative record as explained in the judicial record, Mr. O’Connell’s characterization of Washington Federal’s “speculation in the Ginnie Mae market” is rationally based on fact. Also there is a rational basis for the Taylor memorandum to refer to the GNMA speculation as “massive,” noting as it did that the Association had assets of $383 million and $432 million in forward commitments. In sum, the foregoing O’Connell memorandum statements accurately and fairly picture Washington Federal’s March financial prospects, with March 19 the climax date. Combining this memorandum, the Taylor memorandum attachments, “Statement of Condition, December 31, 1979” and “Summary of Commitment Position — 12/31/79,” the following statements in the Taylor memorandum are rationally based on fact: Washington Federal, a $383 million Association, operates five offices in the Cleveland, Ohio area. Its present problems result from a massive speculation in Ginnie Maes. The Association has commitments to purchase Ginnie Mae securities through June, 1981, of $432 million. The Association has neither the capacity to fund these commitments nor the net worth to absorb the losses estimated at $61 million which would result from the sale of such securities. * * * * * * In this connection, an additional $17 million in margin comes due on March 3, which the FHL Bank of Cincinnati will fund. An additional $82 million comes due on March 19, which the Cincinnati Bank will fund if we subordinate the FSLIC as we did in Hawaii. Mr. O’Connell’s memorandum further observed that “despite the Association’s admission that it needs assistance to honor its obligations, it is opposed to a merger.” He then stated: The Association’s story is that it knows more about its securities transactions than anyone else and it should be given the opportunity to try to work out of its problems. This it believes can be achieved by the FHL Bank of Cincinnati providing advances as needed and also providing a letter of credit which will act to comfort securities dealers who are becoming very anxious regarding the Association. The line of credit requested is $566 million. After reporting that the Association “was encouraged to state its workout plan and submit its requests for our review,” he stated: The only thing offered by the Association was for us to close our eyes to the situation and let the Association do what it can to work out of its situation. The Association did state it would request a letter of credit and free access to the advance window. Plaintiff characterizes O’Connell’s description of the Washington Federal plan as “grossly inaccurate and irresponsible.” Mr. O’Connell was asked on cross-examination if he heard the statement “a line of credit was requested in the amount $566 million.” He answered “Yes.” When asked who said it, he stated, “I believe it was Mr. Sterbank. It was not Mr. Glueck. I believe it was Mr. Sterbank.” Both Mr. Sterbank and Mr. Glueck deny that such a statement was made. The first page of the plan presented at the February 28 meeting mentioned “letters of credit” but mentioned no amount, as seen earlier. Washington Federal’s second letter of February 29, 1980 thus described its request: “As a follow-up to our discussion of February 28th, we are requesting that the Federal Home Loan Bank issue letters of credit or a guaranty in some form collateralizing the mark to market on our outstanding position with GNMA dealers.” The letter went on to say: In addition to the letters of credit, we also require additional advances in the amount of $11 million, assuming our ability to execute dollar reverse repurchase agreements at market levels in effect at the time of our meeting. Just as the letter spoke of letters of credit in the plural and $11 million, Mr. O’Connell’s footnote to his memorandum stated, “The Association states it will need advances of $97 million or a letter of credit [obviously different than the $566 million letter of credit], plus $11 million.” Washington Federal’s “letter of credit or guaranty” request specified no amount on the letter of credit. However, Washington Federal’s “outstanding position with certain GNMA dealers” included its dollar reverse repos as well as its standby commitments. Clearly, Mr. Muldoon believed the letter of credit or guarantee request applied to the Association’s entire position. On March 10, 1980 he wrote Mr. Glueck: On Monday afternoon, March 4, 1980, I advised Mr. Sterbank that a letter dated March 4, 1980 was forthcoming from the Bank indicating that the Bank would not issue a letter of credit or guaranty to Washington Federal regarding all outstanding commitments, as requested by your February 29, 1980 letter. The total outstanding commitment position was in the $500 to $600 million range. Thus Mr. Muldoon’s letter offered circumstantial corroboration that Washington Federal requested a $566 million letter of credit, as the O’Connell memorandum stated. The court finds the memorandum statement to be rationally supported. Slightly altered, the O’Connell statement became the Taylor memorandum sentence, “The Association requested a letter of credit of $566 million plus advances as needed.” The rationality of the O’Connell statement applies equally to this Taylor memorandum statement. The “plus advances as needed” phrase is rationally based on the Association’s request for a $10 million advance in February through December 1980. However, the plan made clear that based on December 31, 1979 levels, $10 million was the maximum advance specified in the 1980 projection and no additional FHLB advance was included for 1981 and 1982. Thus, it is hyperbole, not rationally based in fact, for O’Connell to state, and for the Taylor memorandum to adopt, that the Association wanted “free access to the credit window of the FHL Bank of Cincinnati.” The Taylor memorandum of February 29 reported to each Board member the outcome of the Cincinnati meeting of the previous day. In addition to the account of the meeting set forth in the Taylor memorandum, each Board member was provided with attachments, one of which was the Muldoon letter of February 29, 1980. Thus the Board members knew that the supervisory agents reported that they had given consideration “to all of the background data submitted by the subject Association on February 12, 1980, as well as at the meeting on February 28, 1980 with its management staff.” By submitting to the Board members the letter that reported that “background data” had been “submitted,” it is evident that neither Mr. Timmins, Mr. Taylor, nor Mr. O’Connell was acting to screen from the Board the plans submitted by Washington Federal. Each Board member was then able, if he chose, to obtain and study those materials. The factual statements of the Taylor memorandum based on the O’Connell memorandum and the attached Association’s “statement of condition” as of December 31, 1979 are determined to be rationally based on facts contained in the judicial record. The one exception is the exaggerated statement that the Association wanted “free access to the credit window of the FHL Bank of Cincinnati.” The Taylor memorandum proposed alternatives and made a staff recommendation. Providing a timeframe, the memorandum stated, “It would appear that March 19 is our target for either merging or putting a receiver in the Association.” Since March 19 was the date on which $52 million in dollar reverse repos and $10 million in standby commitments needed to be funded to prevent default on those obligations, it was rational to suggest March 19 as a date “for either merging or putting a receiver in the Association.” D. Referring to the “three-hour discussion .. . with the Association’s representatives,” the Taylor memorandum stated: While the Association’s representatives said they would cooperate, they stated that they were opposed to merger. What they want is permission to ignore regulations and accounting rules and at the same time have free access to the credit window of the FHL Bank of Cincinnati. A reference to “accounting rules” obviously relates to the OES memorandum, R-48, issued January 29, 1980, differentiating the accounting treatment of fixed coupon dollar reverse repos and yield maintenance dollar reverse repos. See n.14, supra. This memorandum is discussed in connection with the Board meeting of March 14, 1980, infra, at pp. 381, 382. The statement that Washington Federal wanted “permission to ignore regulations” refers to Washington Federal’s written request of September 7, 1979. This letter sought waivers of two regulations. One is the forward commitment regulation and its fifteen percen