By Thomas G. Wolfe, J.D.
Recently, the U.S. Court of Appeals for the Tenth Circuit was called to address whether certain Kansas banking officials were entitled to qualified immunity in connection with a civil rights lawsuit brought against them by Columbian Financial Corporation on behalf of Columbian Bank & Trust Company, an insolvent bank under a Federal Deposit Insurance Corporation receivership.
In August 2008, the Office of the State Bank Commissioner of Kansas declared Columbian Bank to be insolvent, seized the bank’s assets, and appointed the FDIC as receiver. On the same day it was appointed receiver, the FDIC sold many of the bank’s assets to a third party in a prearranged sale.
Among other things, Columbian Financial alleged that the Office of the State Bank Commissioner of Kansas and four commission officials violated the procedural due process protections afforded Columbian Bank by the Fourteenth Amendment to the U.S. Constitution because: (1) the bank’s assets were seized and placed under the FDIC receivership in August 2008 without any pre-deprivation hearing; and (2) the bank’s post-deprivation hearing was not concluded until April 2012—a delay of about three years and eight months.
In Columbian Financial Corporation v. Stork, the Tenth Circuit was called to ascertain whether two Kansas bank commission officials, Judi Stork and J. Thomas Thull, were entitled to qualified immunity from Columbian’s claims. Ultimately, the Tenth Circuit ruled that the two Kansas banking officials were entitled to qualified immunity on the due process claims because they did not violate “clearly established constitutional rights” of Columbian. Moreover, in taking their actions, the commissioners reasonably relied on precedents and principles enunciated under both federal and Kansas law, the court determined.
The Tenth Circuit noted, “Our precedents have not squarely addressed the need for a predeprivation hearing when a bank’s assets are placed in the control of a receiver (rather than a conservator).” Columbian argued that even if the appointment of a conservator did not trigger the right to a pre-deprivation hearing, the appointment of a receiver did. In rejecting the bank’s argument, the Tenth Circuit underscored that any distinction between a conservatorship and a receivership “would have been hazy, to say the least,” from the perspective of the state officials, Stork and Thull.
Moreover, the court decided that the Kansas officials were entitled to qualified immunity because: (i) Columbian did not plead facts showing the violation of a clearly established constitutional right; (ii) in forgoing any pre-deprivation hearing, the Kansas officials could reasonably rely on the precedents and analytical framework set forth by the U.S. Supreme Court, other federal circuit courts, and a tangential Kansas case; (iii) contrary to the bank’s argument, Kansas law supported the officials’ actions; (iv) Stork and Hull reasonably concluded that they needed to move quickly once the bank was declared insolvent; and (v) given the fogginess of the issue, the denial of a pre-deprivation hearing did not violate a clearly established constitutional right.
Similarly, the Tenth Circuit rejected Columbian’s contention that the delay between the bank’s seizure in August 2008 and the conclusion of the post-deprivation hearing in April 2012 violated Columbian’s right to procedural due process.
In applying a three-part test as part of a “fact-intensive analysis” to determine whether the delay was excessive and unconstitutional, the Tenth Circuit concluded that the three factors of the test “do not clearly cut in favor of Columbian Financial.” Furthermore, the court asserted, the two Kansas officials did not have the benefit of any “precedent sufficiently on point … to put [them] on notice that the delay was unconstitutional.” In addition, because there was inherent uncertainty about how the Tenth Circuit or the U.S. Supreme Court would apply any fact-intensive balancing test, “the delay in the post-deprivation hearing did not violate a clearly established constitutional right.”
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