## Facts

- Franklin Savings Association, a Kansas state-chartered savings and loan, historically operated as a traditional thrift funded by deposits and secured residential mortgage lending.
- In the early 1980s, Franklin shifted to a higher-risk strategy, including significant investments in mortgage-backed derivative securities and high-yield (“junk”) bonds, increasing exposure to interest-rate and market volatility.
- By 1990, the Director of the Office of Thrift Supervision (OTS) determined Franklin was in an unsafe and unsound condition, had depleted capital that it could not replenish, and had engaged in unsafe or unsound practices risking depositor interests.
- The Director’s decision relied on a substantial administrative record, including examination reports, regulatory filings, supervisory directives, and an independent audit.
- Acting under FIRREA, the Director appointed the Resolution Trust Corporation as conservator.
- Franklin and its parent company sued to remove the conservator; the district court admitted extensive extra-record evidence and, after an 18-day bench trial, ordered the conservator removed.

## Issues

1. Whether judicial review of the OTS Director’s appointment of a conservator is confined to the administrative record, rather than a de novo evidentiary trial.
2. Whether, under the proper APA standard, the administrative record supported the Director’s decision to appoint a conservator for Franklin.
3. Whether FIRREA’s conservatorship framework and post-appointment review violated statutory limits or due process.

## Decision

- The Tenth Circuit held the district court erred by conducting an effective de novo trial and relying on extensive extra-record evidence.
- The court ruled review is limited to the administrative record and governed by the APA’s arbitrary-and-capricious standard.
- Applying that standard, the court held the Director’s decision was not arbitrary or capricious and was supported by the administrative record showing unsafe and unsound conditions and capital depletion.
- The court rejected Franklin’s statutory and due process challenges, concluding FIRREA’s standards and post-appointment APA review were sufficient.
- The court reversed the order removing the conservator and remanded for proceedings consistent with its opinion.

## Legal Principles

- FIRREA authorizes the OTS Director to appoint a conservator when specified statutory grounds exist, including unsafe and unsound condition, capital depletion, or unsafe practices.
- Judicial review of the Director’s conservatorship decision proceeds under the APA and is confined to the agency’s administrative record.
- A reviewing court asks whether the decision was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; it may not substitute its judgment for the agency’s technical and predictive assessments.
- Agency action carries a presumption of correctness; the challenger bears the burden of showing the decision fails APA review.
- Extra-record evidence is permissible only in limited circumstances (e.g., to explain technical matters or assess whether relevant factors were considered), not to retry the merits.

## Conclusion

The Tenth Circuit reinstated the OTS Director’s conservatorship of Franklin, holding that courts must confine review to the administrative record and uphold the Director’s action so long as it reflects a rational, record-supported application of FIRREA and satisfies APA arbitrary-and-capricious review.


Franklin Sav. Ass’n v. Dir., Off. of Thrift Supervision, 934 F.2d 1127 (10th Cir. 1991)