Franklin Savings Association v. Director, Office Of Thrift Supervision

The Director of the Office of Thrift Supervision (Director) appeals the decision of the trial court ordering the removal of the director appointed conservator of Franklin Savings Association (Franklin).Background

A generalized and simplified overview of the facts will help reveal the parameters of this litigation.

Franklin is a state chartered, stock savings and loan association that has been doing business since 1889 in Ottawa, Kansas. Franklin has functioned during most of its existence as a traditional savings and loan association, accepting its depositors' money and in turn loaning these funds to borrowers. Loans were usually secured by a first mortgage on residential real estate. Franklin's profits were derived from the difference in interest paid to depositors and that collected from its borrowers.

In 1973, Franklin was acquired by new ownership who set it upon an expansion course. Franklin now has eight branches, all located in eastern Kansas. In addition, Franklin went "public" with approximately six per cent of its stock being publicly traded on NASDAQ.

In 1981, Franklin decided to adopt "innovative operating strateg[ies]" and "nontraditional" pursuits. Over the next eight years its deposits grew from $200 million to over $11 billion, bringing marked changes to the institution.

Franklin's asset base changed as it had acquired numerous forms of mortgage-backed securities.1 This resulted in a volatile income stream. Franklin attempted both to predict the swings in its income stream with computer modeling, and to hedge its risks using additional and various forms of mortgage-backed securities. The securities bought and sold by Franklin included deep discounted securities, reverse repurchase agreements, long call and put options and strips (both interest only and principal only). Derivative securities (referred to by the district court as "TB 12 assets") entitle the holder to receive only part of the mortgage payments. Such securities are both higher risk and complex, and have only a thin secondary market. Franklin also began acquiring high-yield, noninvestment grade bonds, commonly known as junk bonds. Ultimately, mortgage-backed derivative securities and junk bonds comprised over thirty-five per cent of Franklin's total assets. In addition, Franklin had entered into several off-balance sheet transactions of the same type. Director identified these and other concerns in the form of a supervisory directive issued to Franklin. The underlying basis for Director's concern was the fact these assets were extremely sensitive to both interest rates and principal repayments. Director was also concerned about the liquidity (the ability to immediately turn the assets into cash), as necessary to pay depositors. Director's primary concern was the level of concentration of these assets, i.e., over thirty-five per cent of Franklin's total asset base.

Franklin's liabilities likewise underwent significant changes. Franklin began soliciting deposits nationwide through the use of brokered deposits. These deposits were typically short term and of high cost to Franklin. By the end of 1989, over seventy per cent of Franklin's deposits were brokered. To attract these deposits Franklin had to pay a higher than normal interest rate for a typical savings and loan and, as the deposits were short term, it had to be in a position to turn assets quickly into cash in order to pay depositors as their deposits matured. Director repeatedly expressed his concerns in regard to the extensive use of and significant reliance upon brokered deposits. In November 1989, Director specifically expressed his concern that Franklin's use of brokered deposits had increased significantly over the last six months, both in dollar amount and in relation to total deposits, again Director's primary concern being the level of concentration of these brokered deposits, i.e., over seventy per cent of Franklin's deposits were brokered.

Franklin's position in regard to its concentration of depositors' funds in these high-risk securities was simple. It maintained that it was accurately predicting the performance of these assets; that a market did exist for these assets; and that it had been shrinking the amount of these assets. Concerning its reliance upon brokered deposits, Franklin maintained that the costs of funds had nothing to do with the investments it acquired and that the cost of these funds was actually less than the cost of normal deposits.

Franklin's earnings were declining. Franklin's net interest margin began declining from over two per cent of its total assets in 1984 to less than one per cent by mid-1989. In the fifteen-month period ending December 31, 1989, Franklin had a loss in excess of $58 million. In August and September of 1989, while the assets were growing by $680 million, the tangible capital decreased by nearly $13 million. Earnings are an important source of capital, and Franklin's prospects of future profit appeared bleak. Director felt Franklin was facing losses in excess of $100 million for its improper deferral of hedging losses; incurred a $47 million loss in connection with letters of credit; and suffered a $185 million potential loss in connection with bonds Franklin had issued. Director again expressed his concerns to Franklin in November 1989, additionally pointing out that in the fiscal year ended June 30, 1989, Franklin paid its eight executive officers $3.5 million ($1.8 million of which was in bonuses) and paid dividends of approximately $15 million. This was done notwithstanding the fact Franklin itself reported a $9 million loss in that same fiscal year. These expenditures further impaired Franklin's earnings.

Director had many concerns about Franklin's capital structure. Franklin had unsuccessfully attempted to raise new outside capital. Franklin had also issued a significant amount of its letters of credit guaranteeing the payment of various bond issues that had originated with land developers. (Franklin euphemistically entitled this a "credit enhancement program.") Director ordered a write-down of capital in the amount of $47 million to reflect the risk associated with this credit program. Franklin used accounting methods to defer its actual cash hedging losses. Director ordered an additional write-down of $9 million in order for Franklin's books to accurately reflect these losses. Franklin had issued a significant amount of its own bonds ($3 billion) and Director also ordered a write-down of $185 million to reflect a possible exposure to a perceived risk of possible default. Director believed such a write-down was necessary to avoid a default in these bonds. Director had expressed these concerns to Franklin by pointing out that Franklin's net interest margin had been shrinking and in fact was negative for the past three quarters. Director criticized Franklin's recent continued, aggressive growth in light of these facts. To understand the significance of these facts, it is important to realize that both prudence and the law demand the owner of a financial institution invest some of his own assets in the institution. While capital requirements are complex and involve many factors, we will attempt to explain this requirement with the following illustration: When $100 is accepted in deposits, the owner must have $6 of his own assets in the institution as capital. The bottom line in this case was simple--Franklin was intentionally and aggressively growing without a corresponding growth in capital. In fact, Franklin's capital was shrinking. Moreover, Director had repeatedly and explicitly expressed to Franklin his concern with these matters.

Franklin's position concerning the write-downs ordered by Director is that they were unnecessary as the risks identified by Director did not exist.

By mid-1989, Franklin's metamorphosis was complete. It had been transformed from a traditional savings and loan into something totally different. On June 30, 1989, Franklin's business consisted primarily of attracting savings deposits from the general public nationwide and investing these funds in various mortgage derivative products and mortgage-related assets. Over eighty-three per cent of its interest-earning assets were designated as "assets held for sale." Only 3.3 per cent of its total assets were contained in its loan portfolio. Franklin began to resemble a securities trading firm rather than a traditional savings and loan association.

Such a characterization is not a surprise to Franklin. Director had conducted various examinations and special audits during which there had been numerous meetings, telephone calls, and correspondence between Director and Franklin relating to the numerous problems found by Director. Director had also issued specific directives to Franklin to deal with these concerns but Franklin was either unable or unwilling to comply with the directives.

On February 15, 1990, Director, apparently deciding the failure to address his concerns must be remedied, made specific findings. These findings were based upon three volumes of documents that included reports of examinations, monthly, quarterly and annual financial reports filed by Franklin, supervisory directives, other required annual reports, and the results of an independent audit. These findings included the following:

[Franklin] is in an unsafe and unsound condition to transact business in that, among other things, [Franklin] has a significant level of high risk assets, and has placed undue reliance on brokered deposits, (b) [Franklin] has incurred and is likely to incur losses that will deplete all or substantially all of its capital, and there is no reasonable prospect for [Franklin]'s capital to be replenished without Federal assistance, and (c) there is a violation or violations of laws or regulations, or an unsafe or unsound practice or condition which is likely to cause insolvency or substantial dissipation of assets or earnings or is likely to weaken the condition of [Franklin] or otherwise seriously prejudice the interests of its depositors....

Director thereupon proceeded to appoint "not for the purpose of liquidation" the Resolution Trust Corporation as conservator for Franklin.

Franklin promptly filed an action pursuant to 12 U.S.C. Sec. 1464(d)(2)(E) asking that Director be required to remove the conservator.2 This complaint alleged, inter alia, the absence of the statutory grounds for the appointment of a conservator and asserted the regulatory action was arbitrary and capricious. Director filed a copy of the administrative record contending the trial court's review was limited to this record in accordance with the principles of administrative law.

The trial court rejected Director's approach and crafted a hybrid standard of review. Franklin Sav. Ass'n v. Director of Office of Thrift Supervision, 742 F.Supp. 1089 (D.Kan.1990) ("Franklin II" ).3 The trial court, citing Collie v. FHLBB, 642 F.Supp. 1147 (N.D.Ill.1986), decided Franklin should have the opportunity to submit evidence outside the administrative record as to "whether or not that evidence was considered" by Director, and "to develop any facts bearing on the question of whether any of the statutory grounds existed." Franklin II at 1097. After reviewing the administrative record and the evidence presented to it by both Franklin and Director during an eighteen-day bench trial, the district court viewed the entire package of evidence to determine whether Franklin had overcome the presumption of correctness afforded the agency's action. The trial court correctly noted this would require Franklin to show by a preponderance of the evidence that the agency's decision "lacked any basis in fact or law or was arbitrary, capricious, or an abuse of discretion." Franklin II at 1096.

The trial court characterized this case as "a dispute over accounting practices," Franklin II at 1094, and heard numerous expert witnesses. While difficult to summarily describe the basis of the trial court's conclusions, it appears the court was more impressed with Franklin's expert witnesses than those of Director, consequently accepting the testimony advanced by those witnesses and rejecting the testimony advanced by Director's experts. In so doing, the trial court found Director "lacked any factual basis which would justify its appointment of a conservator" and further concluded Director "acted arbitrarily and capriciously in appointing the conservator." Franklin II at 1126. The trial court ordered Director to remove the conservator, an order which this court stayed and from which this appeal ensues.

Director contends the trial court should have reviewed Director's decision to appoint a conservator upon the basis of the administrative record and in accordance with the Administrative Procedure Act ("APA"). Franklin contends, however, the expanded hybrid scope of review, as fashioned by the trial court, was correct. Whether the trial court properly limited the scope of review is a question of law, which we review de novo.

For the sake of clarity, we deal separately with the scope of review and the standard of review. The scope of judicial review refers merely to the evidence the reviewing court will examine in reviewing an agency decision. The standard of judicial review refers to how the reviewing court will examine that evidence.

We must first define the proper scope of review for a reviewing court when it reviews a director's decision to appoint a conservator for a savings and loan association. While FIRREA4 expressly provides the authority for the director to appoint a conservator, we must examine whether Congress also established or defined the scope of review to be employed when reviewing appointment decisions. FIRREA was Congress's response to the many significant problems existing within the savings and loan industry. These problems include poor management by the owners of the thrifts; poor underwriting and loan administration standards; inadequate supervision of the thrifts by the regulators; and reliance on brokered deposits or other highly volatile sources of funds. H.R.Rep. No. 101-54(I), at 299-301 (1989), U.S.Code Cong. & Admin.News 1989, pp. 86, 95-97. Congress recognized the nation was and is facing a crisis in the thrift industry and consequently FIRREA dictates strong and prompt supervisory oversight. Id. at 307-308, U.S.Code Cong. & Admin.News 1989, pp. 103-104.

FIRREA creates the Office of Thrift Supervision and the position of a director. The director is given extremely broad regulatory powers as he is required to "provide for the examination, safe and sound operation, and regulation of savings associations." 12 U.S.C. Sec. 1463(a)(1). FIRREA likewise gives the director very broad enforcement powers including the power to appoint a conservator if "in the opinion of the Director" a statutory ground for appointment exists. 12 U.S.C. Sec. 1464(d)(2)(E).

The pertinent portions of 12 U.S.C. Sec. 1464(d)(2)(E) provide:

The Director shall have exclusive power and jurisdiction to appoint a conservator.... If, in the opinion of the Director, a ground for the appointment of a conservator ... exists, the Director is authorized to appoint ex parte and without notice a conservator.... In the event of such appointment, the association may ... bring an action ... for an order requiring the Director to remove such conservator ..., and the court shall upon the merits dismiss such action or direct the Director to remove such conservator....

The plain language of this statute reveals: (1) the director has the exclusive power to appoint a conservator; (2) the director may appoint a conservator if, in his opinion, a statutory ground for the appointment exists; (3) assuming the director has opined the ground for the appointment of a conservator does exist, his decision whether to appoint a conservator is discretionary; and (4) the statute, while clearly authorizing judicial review of the director's decision, fails to specifically define the scope of that review.5

We first emphasize FIRREA establishes that the determination of whether the statutory grounds to appoint a conservator exist lies in the province of the director's opinion. The plain, ordinary, and usual meaning of the word "opinion" is a belief held with confidence, not substantiated by direct proof or knowledge. See Webster's II, New Riverside University Dictionary (1988). An opinion is formed after an evaluation of the facts based upon special knowledge and expertise. Congress did not mandate a hearing or specific findings of fact be made; rather, it required only the director be of the opinion statutory grounds for appointment of a conservator exist. There exist compelling reasons for this statutory provision: A savings association's assets consist principally of its depositors' funds; assets can be quickly dissipated; liabilities may be just as quickly created; and liquidity may suddenly disappear. If there is inadequate capital to absorb losses, the losses fall upon the FDIC, and if these funds are depleted, then upon taxpayers. For these reasons, Congress made clear it expects the director to be vigilant and responsive. FIRREA's statutory scheme, the specific statute at issue (12 U.S.C. Sec. 1464(d)(2)(E)), and the legislative history, all agree it is essential the director act promptly in appointing a conservator once he is of the opinion that a statutory ground exists. The close supervision, broad discretion, and quick response directed by FIRREA dictates a narrow and limited scope of review that gives deference to the director's judgment, knowledge, and expertise.

In cases where Congress has provided for judicial review without setting forth the standards to be used or procedures to be followed in conducting that review, the Supreme Court has advised such review shall be confined to the administrative record and, in most instances,6 no de novo proceedings may be had. Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 1244, 36 L.Ed.2d 106 (1973); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 419-20, 91 S.Ct. 814, 825-26, 28 L.Ed.2d 136 (1971); United States v. Carlo Bianchi & Co., 373 U.S. 709, 715, 83 S.Ct. 1409, 1413, 10 L.Ed.2d 652 (1963); Woods, 826 F.2d at 1406; Guaranty Sav., 794 F.2d at 1342.

A reviewing court may go outside of the administrative record only for limited purposes. For example: Where the administrative record fails to disclose the factors considered by the agency, a reviewing court may require additional findings or testimony from agency officials to determine if the action was justified, Overton, 401 U.S. at 420, 91 S.Ct. at 825; or where necessary for background information or for determining whether the agency considered all relevant factors including evidence contrary to the agency's position, Thompson v. United States Dept. of Labor, 885 F.2d 551, 555 (9th Cir.1989); or where necessary to explain technical terms or complex subject matter involved in the action, Animal Defense Council v. Hodel, 867 F.2d 1244, 1244 (9th Cir.1989), and Animal Defense Council v. Hodel, 840 F.2d 1432, 1436 (9th Cir.1988).

Franklin cites numerous district court cases that it contends should persuade us to interpret Sec. 1464(d)(2)(E) as requiring either a hybrid scope of review, as was adopted by the trial court, or some other form of an expanded scope of review. For instance, Franklin cites Haralson v. FHLBB, 655 F.Supp. 1550, 1557-58 (D.D.C.1987), where the court in interpreting the former, nearly identical statutory provision of the Home Owner's Loan Act of 1933, 12 U.S.C. Sec. 1464(d)(6)(A), acknowledged that as long as a post-deprivation hearing is provided, there will be no due process violation; and Collie, 642 F.Supp. at 1152, where the court held that under the former but nearly identical law, the savings and loan association had the right to a meaningful opportunity at some point to make its case in opposition to the appointment. Collie, the case embraced and adopted by the trial court in the case before us, and other cases of similar nature, were discussed and analyzed by the Fifth Circuit in Woods, 826 F.2d at 1406-08, where the court found the analysis employed in these cases unpersuasive. In Woods, the court held the "upon the merits" language of Sec. 1464(d)(6)(A) did not require a full adversarial and evidentiary hearing, nor did it mandate de novo review of appointment decisions made pursuant to the statute. See also Carlo Bianchi, 373 U.S. at 715, 83 S.Ct. at 1413; Guaranty Sav., 794 F.2d at 1342. Rather, the court held such decisions are to be reviewed on the basis of the administrative record and in accordance with the APA. Woods, 826 F.2d at 1408. We agree with the Fifth Circuit's decision in Woods, and are equally unpersuaded by Collie and the other district court decisions holding otherwise.

We therefore find the district court erred in adopting the reasoning set forth in Collie, 642 F.Supp. at 1150-52, and deciding the phrase "upon the merits," as used in Sec. 1464(d)(6)(A), directed something more than a review of the administrative record in accordance with the APA. Franklin II, 742 F.Supp. at 1096-97. Review "upon the merits" simply means the district court's decision to either dismiss the action or remove the conservator should be based upon the merits of the action (i.e., whether statutory grounds for the appointment of a conservator exist), rather than on procedural or policy oriented grounds. See Guaranty Sav., 794 F.2d at 1342. Again, we conclude the proper scope of review for appointment decisions made pursuant to Sec. 1464(d)(6)(A) is that review be confined to the administrative record in accordance with the APA.

Franklin argues the Supreme Court's decision in Overton dictates an expanded scope of review. Overton revolved around a statutory prohibition against building highways through a public park where a feasible and prudent alternate route exists. The Secretary authorized the construction of a six-lane highway through a public park. The Secretary failed to make any factual findings as to why he believed there was no feasible and prudent alternate route. The Supreme Court held formal findings were not required. Overton, 401 U.S. at 419, 91 S.Ct. at 825. The Court further held: the Secretary's decision was subject to judicial review; de novo review was not required; the Secretary's decision need not meet the substantial evidence test; and the applicable standards of Sec. 706 of the APA require the reviewing court "to engage in a substantial inquiry." Overton, 401 U.S. at 415, 91 S.Ct. at 823. In Overton, the lower court's review was based upon litigation affidavits. As the Supreme Court found this to be an inadequate basis, it remanded with instructions that the district court could require the administrative officials who participated in the decision to give testimony or require the Secretary to make formal findings explaining the action taken. Overton, 401 U.S. at 420, 91 S.Ct. at 825. We believe Overton is thus distinguishable and does not dictate an expanded scope of review.

In the case before us, Director did make formal findings and produced and certified a voluminous and detailed agency record for review that would enable the reviewing court to conduct a substantial and meaningful review from the agency record. The trial court, however, determined the three-volume administrative record, as designated by Director, was not the "whole administrative record" since it believed there were missing documents upon which Director relied. Franklin II at 1098. The appropriate remedy for this alleged defect would have been for the trial court to call for any missing documents or require Director to testify or provide further explanation. Instead, the district court crafted and conducted a hybrid scope of de novo review. While the director has an obligation to produce for judicial review a designated administrative record, such record does not have to be needlessly elaborate, nor as detailed as the district court here required.

For example, while the November 1989 supervisory directive issued to Franklin states merely that Franklin has increased its reliance on brokered deposits to an unacceptable level, there exist many other references in the agency record condemning Franklin's excessive use of brokered funds. It is certainly not necessary for the administrative record to contain extensive treatment on the use of brokered funds, their pros and cons, and what levels are excessive. Such information is common knowledge to those in the banking industry. To the extent the specific material was considered by Director and not included in the agency file, the proper approach is to call for the production of such documents or require further testimony relating thereto. In the instant case, there were numerous meetings between personnel of both Director and Franklin. The trial court, having found there were no notations as to what statements were made at the meetings, what issues were discussed, or what Franklin's positions were regarding those issues, determined the record was incomplete and therefore defective. Franklin II at 1098 n. 5. This determination is simply incorrect. As a practical matter, the director reviews certain selected materials. Ordinarily, these materials will include: the required reports submitted by the savings association; the reports of examination; the reports of independent auditors; supervisory directories; the responses by the savings association; and such additional information as desired by the director to have reviewed. To require the director to have reviewed and relied on all working papers, synopses of all conversations, and other minutiae, would defeat FIRREA's objective requirement of prompt supervisory action. The director need review only such information as he deems necessary or desirable to enable him to arrive at an informed and fair opinion. Absent extraordinary circumstances, the decision of the director as to what information he must review to make an appointment decision should be left to his discretion. The director, in the case of judicial review of his appointment decision, has the obligation to produce and certify the record upon which he relied at the time of the decision. This record must contain sufficient data to allow the reviewing court to determine whether the director had a rational basis for the appointment decision. In the case before us, the administrative record contained voluminous data including: the executive summary; legal memorandum; Director's orders; state commissioner's letters; recommendation memorandum; interim reports of examination; reports of examination; supervisory reports; supervisory directives; the June 30, 1989 independent audit; the 10-K annual report for the year ended June 30, 1989; and many further reports, analyses and documents. This record was adequate to permit meaningful judicial review.

Franklin argues the agency record is one-sided and fails to contain any of Franklin's documents showing their analysis. Franklin contends these factors dictate an expanded scope of review. In making these assertions, Franklin ignores the substance of the agency record, which contains numerous recitations of Franklin's views and reasons therefor. A reading of the administrative record clearly shows the substance of Franklin's positions were before Director when the appointment decision was made. The director is not required to review every document arguably related to the troubled institution in question, nor is a reviewing court. We note again the administrative record in the instant case is extensive. The record shows Franklin had numerous opportunities to present its views and that those views were considered by Director. Moreover, the record provides ample support for Director's appointment decision.

Franklin also objects to the lack of a prior hearing. 12 U.S.C. Sec. 1464(d)(2)(E) affords the association to which a conservator has been appointed the opportunity for judicial review of the appointment decision. The availability of this post-deprivation hearing precludes any due process violations. See Franklin II at 1126; Haralson v. FHLBB, 837 F.2d 1123, 1126 (D.C.Cir.1988). Thus, we find Franklin has no basis to claim a constitutional deprivation on this ground.

In summary, we conclude the district court, in reviewing the director's decision to appoint a conservator, should confine its review to that information before the director at the time the appointment decision was made. When the director learns the appointment decision has been challenged, the director has the obligation to produce the information that he relied upon in making his decision to the district court and to certify such information is accurate and complete. Thus, the director's obligation does not extend to all information contained in his files. Should the savings and loan association challenging the appointment decision desire additional information from the agency record than that presented by the director to the district court, it may request such information in accordance with the applicable rules of discovery and evidence.

Our conclusion in this case is bolstered by the overall regulatory scheme involved and the nature of the controversy. The regulatory scheme requires the financial institution submit periodic reports to the director. These reports present a balance sheet, a profit and loss statement, and other detailed financial information. The director performs periodic examinations, which in part are designed to assure the accuracy of the financial information submitted by the financial institution. In other words, the regulatory system is designed to assure a high degree of reliability in the raw data or books of account. In the controversy before us neither party has disputed the accuracy of the basic data. For example, neither the amount of total deposits nor the amount of the brokered deposits are in dispute. It is only basic policy decisions, such as whether the degree of Franklin's reliance upon brokered deposits constitutes an unsafe or unsound practice, that are now being disputed.

In summary, the statutory scheme, the legislative history, the APA, the applicable case law, and the regulatory scheme all lead us to the conclusion that when a court reviews the director's decision to appoint a conservator for a savings and loan association, the reviewing court should ordinarily confine its review to that information that was before the director at the time the appointment decision was made.

By our holding today, we do not place any strict limitations on the admission of other evidence in certain narrow circumstances. However, such evidence should be received with caution. In addition, of the narrow exceptions to the general rule that do exist, none is applicable to the present case.

The focus of the judicial review is to determine whether there exists sufficient evidence in the administrative record to form a reasoned opinion that the statutory grounds for the appointment of a conservator exist. In this case, the district court heard live testimony from twenty-five witnesses; accepted deposition testimony from eighteen witnesses; received over 650 trial exhibits; engaged in credibility determinations regarding competing experts; and basically made its own findings, compared those to the findings of Director, and decided the conservator was wrongly appointed. Such a review was far beyond the court's permissible scope of review. We therefore find the district court erred in improperly expanding the scope of its review.II.

Having defined the applicable scope of review, we must next determine the standard of review to be applied by the district court. See 12 U.S.C. Sec. 1464(d)(2)(E).

As 12 U.S.C. Sec. 1464(d)(2)(E) fails to define or specify the standard of review to be used in examining Director's appointment decision, we look to the APA for guidance. 5 U.S.C. Sec. 706(2)(A) of the APA directs the reviewing court to use the arbitrary or capricious standard of review. 5 U.S.C. Sec. 701 of the APA provides the action of "each authority" of the government of the United States is subject to judicial review except where there exists a statutory prohibition on review, or where "agency action is committed to agency discretion by law." In the case before us, the statute that gives the director authority to appoint a conservator, 12 U.S.C. Sec. 1464(d)(2)(E), also provides for judicial review. Congress intended for the courts to review whether the facts relied on by the director show a statutory ground for the appointment to exist. We note that once a director has determined statutory grounds for the appointment of a conservator exist, the decision whether to appoint is within his discretion. However, this is not the question before the court today. What is before this court is the question: What is the standard of judicial review once the decision to appoint a conservator is made by the director, and thereafter challenged by the savings and loan association?

Here, Franklin challenged Director's decision to appoint a conservator in accordance with 12 U.S.C. Sec. 1464(d)(2)(E). A court reviews the director's decision based upon the record before the director at the time of his decision. In conducting this review, the director's findings are entitled to deference, and the appointment decision itself is entitled to a presumption of regularity. Overton, 401 U.S. at 415, 91 S.Ct. at 823. Franklin has the burden to overcome these presumptions. See Guaranty Sav., 794 F.2d at 1342.

We believe it significant to note the case before us does not involve the more severe decision to appoint a conservator for the purpose of liquidation. Indeed, a conservator ordinarily acts as a guardian or a protector. The decision to appoint a conservator is not a judgment to divest the owner of his property. Rather, it is a judgment that the owner is unable or unwilling to properly manage or control the assets and it is an attempt to put the institution back into a safe and sound condition. H.R.Rep. No. 101-54(I), at 126, 211. This fact permits both a restricted scope of review and a deferential standard of review.

Two other circuits have addressed the standard of judicial review under the Home Owner's Loan Act of 1933, 12 U.S.C. Secs. 1461-1468, which contained virtually identical statutory language as that in the present 12 U.S.C. Sec. 1464(d)(6)(A). In Woods, 826 F.2d 1400, the Fifth Circuit looked at the "strong congressional intent for swift, effective regulatory action" mandated by 12 U.S.C. Sec. 1464(d)(6)(A), id. at 1407, and held the appointment decision must be reviewed on the basis of the administrative record in accordance with the APA's arbitrary or capricious standard of review. 5 U.S.C. Sec. 706(2)(A).7 In Guaranty Sav., 794 F.2d at 1342, the Eighth Circuit also concluded the agency decision should be reviewed applying the arbitrary or capricious standard set forth in