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FDIC Enforcement Decisions and Orders

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   [5134] Docket Nos. FDIC-87-65b, FDIC-87-66b, FDIC-87-69b (Consolidated) (3-21-89).

   Application for attorney fees under Equal Access to Justice Act denied. FDIC found that Respondents failed on all points to satisfy criteria for an award of fees. (For further proceedings relating to these dockets see [¶5114]).

   [.1] Practice and Procedure—Appeals—Change of ALJ
   Respondents are not prejudiced when a petition for attorney fees is not reviewed by the same ALJ who tried the underlying substantive case, where the ALJ reviewing the petition found valid basis for denying fees.

   [.2] Equal Access to Justice Act—Timeliness of Petition
   The time period for filing an application for attorney fees begins to run on the date on which the FDIC's final decision is issued, not on the date of its final order.

   [.3] Equal Access to Justice Act—Prevailing Party
   Respondent was not the prevailing party for purposes of an application for attorney fees where FDIC rejected Respondent's basic position, even though FDIC did not include in its final order specific language to which Respondent had objected.

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In the Matters of
* * *
* * * BANK * * *
AND
* * * BANK, * * *


(Insured State Nonmember Banks)
DECISION and ORDER

   This proceeding concerns an application for attorney fees filed under the Equal Access to Justice Act ("EAJA"), 5 U.S.C. §504, by three banks, * * * Bank * * *, * * *, * * * Bank * * * and * * * Bank, * * * ("Respondents"), arising out of a cease-and-desist action involving the three Banks. Under the EAJA, attorney fees and other expenses may be awarded upon a showing that Respondents meet the statutory qualifications, were the prevailing parties, and prove that the agency's position was not substantially justified in the underlying cease-and-desist proceeding. 5 U.S.C. §504.
   On January 10, 1989, the Administrative Law Judge ("ALJ") issued a Recommended Decision finding that Respondents failed to meet their burden of proof and therefore, their application should be denied. The Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") has thoroughly reviewed the record in this matter, including the pleadings, the ALJ's Recommended Decision, and the exceptions filed by the Respondents and concludes that the ALJ's Recommended Decision is (except for one minor aspect mentioned below that is not material to the conclusion reached) well-reasoned, thorough, and correct. Further, the ALJ's Recommended Decision addresses completely all of the issues raised by Respondents, including those raised in their exceptions, with the single exception of the allegation of prejudice.

   [.1] Respondents allege that, because their EAJA application was heard by ALJ Michael O. Miller rather than ALJ William R. Gershuny (who presided over the underlying cease-and-desist proceeding), prejudice resulted. They allege that ALJ Miller did not understand all facets of the underlying proceeding, and they quote several sentences from the Decision in which he surmises that the power to approve or disapprove a bank's management may be implied from the management clause in the Order ultimately adopted by the Board. While the Board does not concur on that point, ALJ Miller's view was not critical to the ultimate decision since it relates to only one aspect of the requirements under the EAJA—that Respondents be the prevailing party. It does not address or otherwise relate to the other requirements involving net worth and substantial justification for the positions taken by the agency. In any event, the ALJ found valid additional bases for concluding that Respondents were not prevailing parties. Therefore, prejudice did not result since the ALJ's view of this issue was not dispositive of the ultimate conclusion regarding an award of attorney fees under the EAJA. Since Respondents set forth no other valid basis upon which the Board can conclude that they were prejudiced, we find no merit in this allegation.
   Accordingly, the Board agrees with the analysis and the ultimate decision of the ALJ to deny Respondents' application and adopts and incorporates by reference his Recommended Decision as modified herein.

ORDER

   IT IS HEREBY ORDERED, that, for the reasons set forth in the Decision of the Board and in the Recommended Decision of the ALJ incorporated therein, Respondents' application for an award under the Equal Access to Justice Act, 5 U.S.C. §504, is denied.
   By direction of the Board of Directors.
   Dated by Washington, D.C., this 21st day of March, 1989.

In the Matters of
* * * BANK * * *
* * *; * * * BANK * * *
* * *; and * * * BANK, * * *

(Insured State Nonmember Banks)

RECOMMENDED DECISION AND
ORDER
EQUAL ACCESS TO JUSTICE ACT

I. Statement of the Case

   MICHAEL O. MILLER, Administrative Law Judge: On June 30, 1988, following issuance of Orders to Cease and Desist and a Decision, * * * Bank * * *, * * * Bank * * *, and * * * Bank, * * *, herein individually called * * *, * * * and * * * and collectively called the Banks or the Appli- {{4-1-90 p.A-1428}}cants, filed an application for the payment of fees and other expenses pursuant to the Equal Access to Justice Act, 5 U.S.C. §504, herein called EAJA. In that application, the Banks asserted that they were eligible for benefits under EAJA, that they were the prevailing parties in the underlying adversary proceeding, that the position of Counsel for the Federal Deposit Insurance Corporation, herein called FDIC or the Board, was not substantially justified, and that the Banks' legal fees should be reimbursed at a rate in excess of the statutory limit because of the higher hourly rates paid for attorneys specializing in banking litigation.1
   On July 15, 1988, FDIC enforcement counsel filed an answer to the application, admitting that the underlying proceedings were adversary in nature but denying the remainder of the Applicant's assertions. FDIC counsel urged summary dismissal because the application was untimely filed and was not supported by the requisite statements of net worth.

II. Findings of Fact

A. Summary of Litigation

   On April 8, 1988, the FDIC issued separate Notices of Charges and Hearing against each of the Banks, pursuant to Section 8(b) of the FDIC Act, 12 U.S.C. §1818b. The Notices alleged that each bank had engaged in unsafe or unsound banking practices and, in the case of * * *, violations of law, that each Bank had been operated with management whose policies and practices had been detrimental to the Bank and had jeopardized the safety of the Bank's deposits, and that each Bank's board of directors had failed to provide adequate supervision and direction over the active officers of that Bank to prevent the unsafe and unsound banking practices and violations of law. The Banks filed timely answers, denying the substantive allegations.
   Hearing the * * * matter commenced on September 8, 1987. On the third day of hearing, the FDIC and * * * stipulated to the withdrawal of the answer; * * * agreed not to contest the allegations of the Notice of Charges and the parties agreed that the factual record previously developed would be disregarded. Remaining in dispute was the legality of the FDIC's proposed order calling for the following management-acceptable clause:

    1(a) No more than 60 days from the effective date of this Order, the Bank shall provide and thereafter continue to retain, management acceptable to the [FDIC's * * *] Regional Director... and the [* * * Commissioner * * *.] Such management shall include a qualified lending officer who shall be given stated written authority by the Bank's Board of Directors, including responsibility for implementing lending policies in accord with sound banking practices. The acceptability of management shall be assessed on its ability to: (i) comply with the requirements of this ORDER, (ii) operate the Bank in a safe and sound manner, (iii) comply with applicable laws and regulations, and (iv) maintain all aspects of the Bank in a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness and liquidity. As used in this paragraph, "maintain" includes improvement in quality if necessary to comply with this requirement.
    1(b) In order to provide acceptable management for the Bank...
The Bank contended that this clause would permit the FDIC to remove directors or require the appointment of new directors and officers, a "backdoor removal" precluded to the FDIC except in proceedings under §8(e) of the Act.
   The FDIC adduced the testimony of * * *, its * * * * * * Assistant Regional Director, primarily on how he understood the management-acceptable clause to be interpreted. In testimony which was essentially consistent with the lengthy, detailed and repeated explanations of FDIC counsel, the FDIC disclaimed any authority to approve, disapprove or remove bank management under this specific provision. Any violations of the management-acceptable clause, as might be revealed by follow-up examinations of the Bank which found new or con-

1 While Counsel for the Banks had initially sought to file the application with Administrative Law Judge William R. Gershuny, who had heard the underlying proceeding, the matters were assigned by the FDIC to the undersigned in rotation as one of the Administrative Law Judges then selected by the Office of Personnel Management (OPM) to hear FDIC litigation. As noted by OPM, having transferred from the agency which had made him available for FDIC cases (the National Labor Relations Board) to another agency (the Social Security Administration), Judge Gershuny was no longer available to the FDIC for assignment. On July 29, 1988, OPM confirmed the assignment to the undersigned. The Applicant has maintained its objection to the assignment.
{{4-1-90 p.A-1429}}tinued unsafe or unsound banking practices or violations of law, would be dealt with by the institution of compliance enforcement proceedings or proceedings for civil money penalties. Following FDIC counsel's disclaimer, counsel for the Banks stated (at Tr. 109) that the issue of "backdoor removals" was no longer relevant. She continued to insist that the language was overbroad, vague and impossible of performance and insisted upon language which clearly said what the FDIC claimed the provision meant (Tr. 287).
   Secondarily, the Bank questioned the propriety of FDIC's proposed injunctive provisions, similarly asserting that they were impossible of performance.
   On September 22, 1987, the * * * case was consolidated for all purposes with * * * and all the stipulations and the record were made fully applicable to * * *. On November 9, * * * was similarly consolidated with * * * and * * *.
   Following submission of proposed findings, orders and briefs limited to the aforementioned issues, including the "backdoor removal" issue, Judge Gershuny issued his Recommended Decision and Order. Judge Gershuny found that the Banks had engaged in unsafe and unsound banking practices, incorporating all allegations contained in the Notices of Charges. He further found that the management of the Banks had "caused or permitted" each Bank to engage in such practices, that the Banks had been operated with management whose policies and practices had been detrimental to that Bank and had jeopardized the safety of that Bank's deposits, and that the board of directors of each Bank had failed to provide supervision and direction over the active officers so as to prevent such practices.
   With respect to the management-acceptable clause, Judge Gershuny essentially upheld most of the Banks' positions. While recognizing both the importance that the quality of management bears in the safe and sound operation of a bank and the authority of the FDIC to assess and deal with inept or unsuitable management under a variety of provisions, he concluded that FDIC counsel's proposed language would give the FDIC the power to approve, appoint or remove a bank's management or limit its functions. This, he held, conflicts with the FDIC's acknowledged lack of authority under §8(b) of the Act. He further found that the management-acceptable clause conflicted with the fundamental precept that it is the bank's responsibility in the first instance to determine its own management, that the proposed FDIC order constituted an improper delegation of authority to the State Commissioner and, that the proposed language was vague and would pose serious compliance and enforcement questions.
   Notwithstanding the foregoing conclusions, Judge Gershuny found that serious problems, stemming from the quality of the Banks' management, required the inclusion of an order dealing with management. He recommended language from FDIC counsel's proposed order which would require the Banks to "designate a qualified lending officer" with "stated written authority... for implementing and maintaining lending policies in accord with sound banking practices." Expanding upon the suggested language, Judge Gershuny added the requirement that the Banks be required to notify the Regional Director and the State Commissioner of the identity of that lending officer and to submit copies of the written authority to them.
   Finally, Judge Gershuny rejected the Banks' contentions regarding the scope of the injunctive provisions. The proposed orders tracked the language of the "broad" Notices of Charges and were, he concluded, "essential not only to curb existing practice, but to serve as a deterrent against future unsafe or unsound banking practices of a like kind."
   Both the Banks' and FDIC's counsel filed exceptions to the Recommended Decision and Order. At issue was the FDIC's legal authority to require "management acceptable to the Regional Director" including a qualified senior lending officer, and the propriety of the proposed injunctive relief. Under date of May 24, 1988 (but actually not mailed to the parties until May 31, 1988), the FDIC Board of Directors issued its Orders to cease and desist, incorporating by reference the as-yet-unissued Decision. The Orders tracked the Notices of Charges, requiring each Bank to cease and desist from:
   A. operating with an excessive volume of adversely classified assets;
   B. engaging in hazardous lending and lax collection practices, including maintaining {{4-1-90 p.A-1430}}an excessive volume of adversely classified loans;
   C. operating with inadequate equity capital and allowance for loan and lease losses for the kind and quality of assets held;
   D. engaging in violations of applicable law;
   E. operating with management whose policies and practices are detrimental to the Bank;
   F. engaging in practices which produce inadequate operating income and excessive loan losses;
   G. failing to provide adequate supervision and direction over the affairs of the Bank to prevent unsafe or unsound practices and violations of law; and
   H. operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held.
   The Board did not order inclusion of FDIC counsel's proposed management-acceptable clause. However, expanding upon the Judge's proposed language dealing with lending officers, it required the Banks to take the following affirmative action:
    1(a) No more than 30 days from the effective date of this Order, the Bank shall have and thereafter retain a qualified chief lending officer who shall be given stated written authority by the Bank's board of directors, including responsibility for implementing and maintaining lending policies in accord with sound banking practices. Such a senior lending officer shall have an appropriate level of lending, collection and loan supervision experience for the type and quality of the Bank's loans. The Bank shall promptly notify the Regional Director...of the identity of said senior lending officer, and, during the effective term of this Order any replacement for such officer, and shall submit to him a statement of his/her qualifications and a copy of his/her written authority.
   On June 10, 1988, the Board issued its Decision. Citing appropriate authority, the Board held that the statute and court decisions gave it broad discretion to impose affirmative and injunctive relief. That relief, where appropriate, could include a cease and desist order keyed to specific violations of law or unsafe or unsound banking practice. With regard to limitations upon affirmative relief under §8(b), the Board stated:
    Where a bank's management, through its actions, inactions or policies, is a key factor in the creation of a bank's problems, often the most effective (and many times the only) way to restore the bank to financial health is to require it to upgrade the level of ability of its management. The Board has held that, in appropriate circumstances, it has the broad discretion to fashion an appropriate remedy, such as a management acceptable clause, to facilitate correction of the Bank's problems, including management deficiencies, and to bring an end to the unsafe or unsound conditions or practices.
The Board, it stated, "has not been hesitant to order affirmative remedies limiting the authority of specific officers or directors and a requirement that a bank permit the FDIC to review the suitability of senior management."
   The Board expressly rejected the Banks' arguments that the proposed management clause was vague or that FDIC lacked the legal authority to impose affirmative relief dealing with management. It specifically rejected the contention that the management acceptable clause proposed by enforcement counsel sought to impose removal power under §8(b) without meeting the stringent requirements for removal set forth under §8(e). Such provisions, it noted, have been consistently included as "a proper exercise of FDIC enforcement authority under section 8(b)," citing a number of cases wherein it had done so. The scope of such orders is much narrower than §8(e) removal orders, the Board stated, not requiring that an officer or director be completely precluded from participating in the affairs of that or any other insured bank. At most, according to the Board, a management-acceptable order under §8(b) might require an officer to assume other duties within the bank or to perform his duties under someone else's supervision.2
   However, the Board declined to impose the complete management-acceptable clause proposed by enforcement counsel. It held that the "very sparse and conclusory

2 The Board's view of its authority under a generic management-acceptable clause is somewhat broader than was claimed by FDIC counsel under its proposed clause at the hearing. It was essentially consistent with the testimony of its assistant regional director and still conferred significantly less authority than the Banks believed it did.
{{4-1-90 p.A-1431}}factual record," although establishing serious deficiencies in lending operations, management and controls, failed to explore "in some detail the relationship between the Banks' unsafe or unsound practices and poor financial condition and the Banks' senior management." This made the Board's analysis and judgment as to the appropriate remedy more difficult. The Board therefore concluded that "a requirement that management be acceptable to the Regional Director does not seem to be appropriate as a remedial measure based upon this factual record."
   Nonetheless, the Board deemed that the uncontested facts, showing banks which were in very serious financial condition due to imprudent lending and poor collection practices, warranted affirmative relief addressing the management of the Banks' lending operations. As noted above, it ordered affirmative provisions requiring the Banks' management to carefully select and retain senior lending officers, with the necessary levels of training and experience. It required the Banks' boards of directors to define the lending officer's responsibilities and oversee his/her lending practices as well as the remainder of the Banks' operations and practices. Moreover, it required that the Banks' management submit statements as to the authority and qualifications of the senior lending officers so selected to the Regional Director. This provision expanded upon both the Order proposed by enforcement counsel and that which was recommended by the Administrative Law Judge.3
   Finally, the Board similarly found that it had broad discretion to formulate and include the negative provisions in its Orders. Such injunctive provisions, it stated, are routinely included in FDIC Orders. The specific injunctive provisions in these cases tracked the language of the Notices, were not overbroad or vague and were fairly aimed at both curbing the Banks' existing practices and deterring future misconduct.

   B. Resolution of the EAJA Issues

   1. Timeliness

   [.2] EAJA, 5 U.S.C. §504, requires that a party seeking an award thereunder submit its application "within thirty days of a final disposition . . ." The FDIC's implementing regulation, 12 C.F.R. §308.104(b), requires that the application be filed no later than 30 days after service of the Board's final order. In the instant case, the application was dated June 29, and was mailed on June 30, 1988, more than 30 days after the purported May 24 date of issuance of the Order but less than 30 days after the June 10 issuance of the Decision.
   FDIC counsel asserted that the application was untimely, the critical date being the date of issuance of the Order. Applicant contended that the critical date must be deemed to be the date of issuance of the Decision inasmuch as the Order, by itself, is an incomplete document incorporating by reference the unissued Decision. Applicant would be hard-pressed at best to discern the FDIC's rationale and determine if it had a claim without seeing that decision.
   While I would unquestionably agree with this contention of the Applicant, I need not reach that issue here. The Order, while dated May 24, did not issue until May 31, 1988. Pursuant to FDIC Regulation §308.104(b), read in conjunction with §308.22, service of the Order was effectuated on June 3, three days after mailing. It may fairly be presumed that the application, mailed on June 30, was received by the Executive Secretary on or before the due date of July 5 (July 3 and 4 being excluded as a Sunday and a holiday, respectively). This case is distinguishable from Monark Boat Co. v. NLRB, 708 F.2d 1322 (8th Cir. 1983) inasmuch as the FDIC's implementing regulation, §308,104(a), requires filing of the application not "later than 30 days after service of the final order" while the NLRB regulation involved therein, 29 C.F.R. §102.148(a), requires filing not "later than 30 days after entry of the Board's final order." The application, mailed June 30, was timely.

   2. The Net Worth Statements

   In order to be eligible for an EAJA award, a corporation must have a net worth of less than $7,000,000 and employ less than 500 employees. 5 U.S.C. §504(B). Section 308.97(c) of the FDIC's implementing regu-


3The Board further noted that the Banks had stipulated to provisions requiring them to have and maintain boards of directors which were composed of a majority of independent directors. This, the Board concluded, was essential to compliance with the remedial orders and to the return of the Banks to financial health.
{{4-1-90 p.A-1432}}lations requires that, in the case of a bank, the net-worth information be "reported in conformity with applicable instructions and guidelines on the bank's Consolidated Report of Condition filed for the last reporting period before initiation of the underlying proceeding." Section 308.102(a) further provides: "A statement of net worth must be filed with the application."
   Counsel for the Banks asserted, with the application, that each Bank, whether affiliated or not, had less than 500 employees. She further asserted that their net worths did not exceed $7,000,000. No Reports of Condition or other net-worth statements were submitted however and, on that basis, FDIC enforcement counsel moved for dismissal of the application. Applicant countered that the FDIC already had the Banks' Consolidated Reports of Condition, had alleged their net worths in the Notices of Charges and had admissions by the Banks as to those net worth allegations. Thus, she argued, no further submission should be required.
   There is unquestioned logic to Applicant's position on this issue. It must fail at this level, however, because the undersigned, as an administrative law judge, is mandated to comply with the regulations of the agency under whose aegis the case falls. The administrative law judge is no more free to disregard an agency's interpretation of a statute by regulation than that judge would be to disregard a decisional interpretation. The agency's interpretation controls in the absence of contrary authority of a higher appellate body. Here, the Board's regulations are clear and unambiguous; the language is mandatory, and I have been directed to no authority which would suggest that the FDIC improperly interpreted and implemented EAJA. The regulations provide that a net-worth statement "must" be filed with the application and, in the case of a bank, that statement "will" be the Report of Condition for the period preceding the underlying action. This the Applicant failed to do.
   Citing Monark Boat, supra, FDIC counsel further asserts that, inasmuch as EAJA is a waiver of sovereign immunity, the statute and regulations must be strictly construed. Thus, it is argued, the requirement that a proper net-worth statement be submitted is, like the time limits involved in Monark Boat, a jurisdictional requirement, failure of which warrants dismissal.
   I believe that this argument goes beyond the holding of Monark. In Monark, the court held that the statute, as a waiver of sovereign immunity, was to be strictly construed. Interpretive regulations, such as the NLRB's regulations interpreting EAJA's time constraints and the FDIC's regulations interpreting its eligibility requirements, are only entitled to "due consideration." Monark Boat, supra at 1328. This conclusion does not alter the result herein, however. Giving, as I must, the FDIC regulations due consideration, and perceiving no basis for concluding that they are arbitrary, an abuse of discretion or overly burdensome, I must apply them to the facts as I find them. Here, I find that no net-worth statements were filed as required by those regulations. I find no basis, legal or equitable, for implying a substantial compliance test to these facts. I am constrained, therefore, to find that the Applicant has failed to comply with the filing requirements and must recommend that the application be dismissed on that basis. If a substantial compliance test is to be applied to situations such as these, it must be applied, in the first instance, by the Board itself.

   3. Prevailing Party

   Applicant contends that it is a prevailing party because:

    both the administrative law judge and the agency, albeit for different reasons, agreed to modify paragraph 1(a) in response to objections of the Applicants and to delete any requirements of this provision which stated or implied that the regional director of the FDIC could approve or disapprove management officials in the Banks. It is clear from the record in this case that this was the substance of the disagreement between Applicants and the FDIC in pre-hearing negotiations, at the hearing, and in the briefing process. The agency's pre-existing refusal to settle the case by deleting the "acceptability" language contained in the clause was the major impediment to a settlement of this case in toto. (Applicant's Response to FDIC's Motion to Dismiss, p. 8.)4

4In this regard, Applicant reasserted its contention that this proceeding should have been assigned to Judge Gershuny because of his familiarity with settlement negotiations, both on and off the record, and the pleadings. EAJA
(Continued)

{{4-1-90 p.A-1433}}
   The FDIC argued, on the other hand, that the Board's Decision and Order did not constitute either a victory on the merits or substantial vindication on any discreet substantive issue for the Applicant. Therefore, the requirements of Regulation §308.98 were not met. FDIC counsel pointed out that on every issue, save the inclusion of the "management-acceptable" language, FDIC counsel's position prevailed. Moreover, while the Board did not order the inclusion of the disputed language, its Order did include specific language addressing the management problem. Moreover, it specifically rejected Applicant's arguments that the management-acceptable clause was beyond the legal authority of the Board in a §8(b) proceeding or that it was vague or overbroad.

   [.3] At first blush, it would appear that the Applicant had prevailed with respect to the management-acceptable clause; those words do not appear in the Board's Order. However, a careful reading of the record establishes that the Applicant was not a prevailing party. It litigated the FDIC's right to require such language solely as legal issues. It clearly and conclusively failed to prevail on the legal issues. The Board held that it had the legal authority to order inclusion of such language; it further rejected the Applicant's contention that the language was vague or overbroad. While the Board did not include that specific language in its Order, it declined to do so for reasons other than those asserted by the Applicant. It declined because the record, sparse because of the withdrawal of the answer, failed to fully explore the relationship between the Banks' unsafe or unsound practices and poor financial condition and the Banks' senior management.
   Moreover, the Board specifically included language dealing with the selection, appointment, authority and retention of management, i.e., senior lending officials. Such language comes within the scope of Applicant's objections.5If the management-acceptable language carried with it an implication that the FDIC Regional Director had the authority to approve, reject or order the removal of a director or officer, the language pertaining to senior lending officers carries that same objected-to implication. The requirement that the name, qualifications, experience and authority of such lending officers be submitted to the Regional Director as clearly implies a power to approve or disapprove as does as a requirement that management be "acceptable" to the Regional Director. What other reason could there be to require submission of such information? The Board's expansion of the Judge's proposed order relating to the senior lending officers, and its explanation that the provision could affect the authority or job duties of existing lending officers, constitutes a flat-out rejection of Applicant's basic position.
   Finally, while I must agree that the issue concerning the propriety of the injunctive provisions was of secondary importance to the parties, I cannot agree that it is without significance. This was one of the issues which Applicant insisted upon litigating. Applicant's position on this issue was rejected by both the Administrative Law Judge and by the Board.
   Based upon the foregoing discussion, I must conclude that the Applicant was not a prevailing party in the underlying action. I recommend that the application be dismissed on that basis.

   4. Substantial Justification

   A party prevailing in an adversary adjudication with an agency of the United States Government is entitled to fees and expenses unless the position of the agency was "substantially justified." The Supreme Court, in Pierce v. Underwood, 108 S. Ct. 2541 (1988), recently provided the definitive construction of "substantially justified:
We are of the view, therefore, that as between the two commonly used connotations of the word "substantially," the


4 Continued:§504(a) provides that determinations will be made on the administrative record made in the underlying litigation. Similarly, §308.107 provides that the determination of an award will be made on the basis of the written record plus additional written submissions. I have had before me, and thoroughly considered, the entire record, including exhaustive written argument. No evidentiary hearing or oral argument was requested. Consideration of off-the-record discussions, even if permissible, would have added nothing to consideration of this matter.

5As the Applicant noted in its Response to Motion to Dismiss, it specifically excepted "on legal grounds to any management clause that, on its face, accorded to the agency, through phrases like 'management acceptable,' the authority to determine which management officials were satisfactory and which were not, to require the dismissal of the former, and to prohibit the dismissal of the latter." (Emphasis added).
{{4-1-90 p.A-1434}}one most naturally conveyed by the phrase before us here is not "justified to a high degree," but rather "justified in the substance or in the main"—that is, justified to a degree that could satisfy a reasonable person. That is no different from the "reasonable basis both in law and fact" formulation adopted by the Ninth Circuit and the vast majority of other Courts of Appeals that have addressed this issue.
This standard does not require either that the Government had a substantial probability of prevailing at the outset of the litigation or that it prevail therein. Tyler Business Services, Inc., v. NLRB, 695 F.2d 73 (4th Cir. 1982).
   In the instant case, the position of FDIC enforcement counsel was clearly reasonable. In a string of cases involving allegations of unsafe and unsound banking practices similar to those involved here, the FDIC Board of Directors held that it had the authority to issue, and issued, management-acceptable orders.6In two cases, as in the instant case, it specifically rejected the contentions of the parties and the proposed Decisions and Orders of administrative law judges who had argued, as the Applicant did here, that management-acceptable clauses exceeded the FDIC's authority under §8(b).7In two of those cases, as noted in the footnotes, the FDIC Decisions were upheld by Circuit Courts of Appeals (although the specific issue was not addressed in either of those cases). At least equally significant, no case has been cited where either the FDIC or an appellate court had upheld Applicant's contentions respecting the management-acceptable clause.
   Given this precedent and Applicant's withdrawal of its answers, it was entirely reasonable, in both fact and law, for FDIC enforcement counsel to insist, to the point of litigation, upon inclusion of the management-acceptable language and to expect that its position would be upheld.
   Moreover, the reasonableness or substantiality of enforcement counsel's position is demonstrated by the remedy achieved by litigation. The Board's Order addresses the serious management problems and gives its Regional Director about as much authority over the selection and retention of one key member of management, the chief lending officer, as counsel had sought generally with regard to all members of management.
   Applicant argues that the absence of substantial justification is shown by the fact that the Board did not order inclusion of a management-acceptable clause even though the Notices' charges stood as admitted, thus allegedly demonstrating that they were insufficient to support the relief requested. This intriguing argument fails to recognize that it is the reasonableness of government counsel's contentions going into litigation, not whether that position prevails, which determines substantiality. As shown above, enforcement counsel had every reason to expect that, given a stipulated record admitting facts and conclusions which had warranted such relief in prior cases, it would achieve a similar result here. Counsel had no reason to expect that the Board might find such a record insufficient to support the full relief requested. That the Board so found is no reflection upon the substantiality of the litigation position.8
   Based upon the foregoing discussion and the entire record, I find that the position of FDIC enforcement counsel was substantially justified and recommend that the application be dismissed on that basis.

   IV. Proposed Conclusions of Law

   1. The Application was timely filed.
   2. The Applicant failed to comply with the requirements of §308.97 and §308.102, with respect to establishing its eligibility for an EAJA award.
   3. The Applicant was not a prevailing party.
   4. The position of FDIC enforcement counsel was substantially justified.

   V. Recommended Order

   Based upon Proposed Conclusions of Law, Numbers 2, 3 and 4, above, it is recommended that the application for an


6See FDIC-83-172b (1984), enf. Bank of Dixie v. FDIC, 766 F.2d 175 (5th Cir. 1985); FDIC 84-191b (1985); FDIC-84-100b (1985); FDIC-84-71b (1985); and FDIC 83-223b (1984).

7FDIC-85-42b (1986); FDIC-83-132b (1985), enf. First State Bank of Wayne County v. FDIC, 770 F.2d 81 (6th Cir. 1985).


8Given the precedents, the granting of such relief upon a stipulated record would normally be expected. That the Board has now indicated that it wants a fully fleshed-out record, at least on the nexus between upper management's conduct and the problems which befell the bank, before granting this remedy, must of course guide enforcement counsel in future settlement discussions and litigation.

{{4-1-90 p.A-1435}}award under the Equal Access to Justice Act Dated: January 10, 1989 be denied.9
9Accordingly, it is unnecessary to determine whether an award of fees in excess of $75 per hour is warranted.

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