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   [5170A] In the Matter of Dan S. Geiger, First Pacific Bank, Beverly Hills, California, Docket No. FDIC-90-156b&c.

   Board, rejecting recommendation of the ALJ, finds FDIC's action in the underlying action substantially justified and denies application for attorney fees under Equal Access to Justice Act. However, noting special circumstances, it awards the fees and expenses under its own discretionary authority because Applicant had resigned his positions with the Bank and had neither participated in the unsafe or unsound practices nor received any direct or indirect benefit from them.

{{4-30-92 p.A-1830}}
   [.1] Equal Access to Justice Act —Compliance with FDIC Regulations
   The Board may waive strict compliance with FDIC regulations if the EAJA application meets EAJA eligibility requirements and if the facts presented demonstrate that the waiver would not result in prejudice to the FDIC.

   [.2] Equal Access to Justice Act —Substantial Justification
   FDIC was substantially justified in naming Applicant in its temporary cease and desist order to prevent wrongful dissipation of the assets of an insolvent bank. The FDIC had no notice of his resignation ten days before the emergency order and reasonably believed that, as senior vice president and member of the management committee, Respondent was in a position to know of the bank's condition and to have participated in the transfer of funds.

   [.3] Fees and Expenses —Attorney Fees —FDIC Discretionary Authority
   Unique factual circumstances (Applicant had resigned from the Bank, was not involved in and did not benefit from transfer at issue) justify the Board's discretion to pay Applicant his fees and expenses, even though he is not entitled to an award of attorney fees under EAJA.

In the Matter of
JANICE J. FRANCE, et al.
FIRST PACIFIC BANK
BEVERLY HILLS, CALIFORNIA
(Insured State Nonmember Bank)
DECISION AND ORDER
FDIC-90-156b&c
(Geiger Application)

I. INTRODUCTION

   This proceeding arises out of an Application for Recovery of Attorney's Fees and Other Expenses dated March 1, 1991 ("Application"), by Dan S. Geiger ("Applicant") submitted to the Federal Deposit Insurance Corporation's ("FDIC") Office of the Executive Secretary ("OES") under the Equal Access to Justice Act ("EAJA"), 5 U.S.C. §504, and the FDIC's Rules of Practice and Procedures, 12 C.F.R. §§308.113-.127, seeking recovery of attorney fees and other expenses incurred in connection with a Notice of Charges and of Hearing issued August 10, 1990. The charges alleged that Applicant had engaged in unsafe or unsound banking practices by participating in certain bank fund transfers to law firms on behalf of certain officers of the bank, in anticipation of the insolvency and closure of First Pacific Bank, Beverly Hills, California ("Bank"). On October 15, 1990, the Enforcement Counsel moved to remove Applicant as a party after determining that he had no direct or indirect involvement in the transfers. By decision of February 5, 1991, the FDIC Board of Directors ("Board") accepted the Administrative Law Judge's Recommended Decision and ordered that Applicant be dismissed.
   On March 25, 1991, the FDIC filed an Answer objecting to the Application for fees and expenses. Answer and Objection of the FDIC to Respondent Geiger's Application for Recovery of Attorney's Fees and Other Expenses ("Answer"). The OES submitted the Application to an Administrative Law Judge ("ALJ"), who conducted a hearing on April 30, 1991. The ALJ recommended that this Application be approved and that the FDIC reimburse Applicant for attorney fees and expenses in the amount of $4,041.85. Recommended Decision of August 5, 1991 ("R.D.") at 5. The FDIC's Enforcement Counsel filed exceptions to the ALJ's Recommended Decision on August 28, 1991.
   After a review of the entire record of this proceeding, the Board concurs with the ALJ's Recommended Decision in finding that the Applicant has demonstrated eligibility to seek an award under the Equal Access to Justice Act, but rejects the ALJ's finding that the FDIC's position in the underlying litigation was not shown to be substantially justified and denies an award of fees and expenses to Applicant on that basis. However, the Board has determined that the unique factual circumstances involved here justify the exercise of the Board's discretion to pay the Applicant his fees and expenses.

II. BACKGROUND

A. FDIC's Charges Against Applicant

   On April 30, 1990, the FDIC examined the Bank's condition and found that it had {{4-30-92 p.A-1830.1}}"an extremely high immediate or near term probability of failure due to the volume and severity of weaknesses or unsafe or unsound conditions." Declaration of Donald L. Pfeiffer, Assistant Regional Director at ¶7 ("Pfeiffer Decl."). It was found to be insolvent. Id. at ¶8. On July 12, 1990, a meeting was held between the Bank's board of directors and legal representatives of the Bank and regulators from the California State Banking Department and the FDIC, at the offices of the California State Banking Department in Los Angeles. The Bank was advised at this meeting and in a follow-up letter from the State Banking Department of its critical financial condition and that regulators were prepared to take "extreme action" unless the Bank promptly corrected its condition. Pfeiffer Decl. at ¶11.
   Beginning on July 13, 1990, the Bank prepaid the following six legal expenses to four Los Angeles law firms for the benefit of the Bank and/or certain of its officers and directors:

       a) July 13, 1990: $30,000 paid by the Bank as a prepaid expense to Respondent Keck, Mahin & Cate for purposes of defending Respondent Robert A. Palmer who was the president-senior credit officer and director of the Bank;
       b) August 2, 1990: $25,000 paid by the Bank as a prepaid expense to Respondent Keck, Mahin & Cate for purposes of defending Respondent Leon Zuckerman who was the senior vice-president-construction loan manager of the Bank;
       c) August 7, 1990: $25,000 paid by the Bank as a prepaid expense to Respondent Law Offices of Ronald D. Jaman for purposes of defending Respondent Leo Kaplan who was a director of the Bank;
       d) August 7, 1990: $25,000 paid by the Bank as a prepaid expense to Respondent Law Offices of Ronald D. Jaman for purposes of defending Respondent Michael Zugsmith who was a director of the Bank;
       e) August 6, 1990: $25,000 paid by the Bank as a retainer to Respondent Crowley & Cuneo for matters related to the California State Banking Department; and
       f) August 6, 1990: $50,000 paid by the Bank as a retainer to Respondent Christensen, White, Miller, Fink & Jacobs for matters related to the California State Banking Department and capitalization of the Bank.

Pfeiffer Decl. at ¶12.
   The FDIC first became aware that these transfers were taking place on or about August 6, 1990. Pfeiffer Decl. at ¶12. On August 10, 1990, the FDIC issued a Temporary Order to Cease and Desist ("Order") and Notice of Charges and of Hearing ("Notice") against Applicant after concluding that there was reasonable cause to believe that the Applicant had engaged in unsafe or unsound banking practices by causing, or participating in causing, the six transfers of funds with knowledge that the Bank was in critical condition and would soon be closed. Pfeiffer Decl. at ¶14. The FDIC deemed these transfers to be made in anticipation of insolvency, and it acted pursuant to its statutory authority to prevent the dissipation of assets and prejudice to the interests of depositors, creditors and shareholders of the Bank. Pfeiffer Decl. at ¶14. On August 10, the Superintendent of Banks for the State of California took possession of the Bank and tendered receivership of the Bank to the FDIC. Pfeiffer Decl. at ¶13.
   On September 10, 1990, the Applicant filed an Answer to the Notice with the FDIC. The Answer represented that Respondent resigned, effective July 31, 1990, all positions he held at the Bank. A copy of his resignation was attached to the Answer. The Answer also represented that none of the six transfers were made at the request or knowledge of the Applicant, and that none of the six transfers resulted in any direct or indirect benefit to him. On October 15, 1990, the FDIC moved to amend its Notice to delete the Applicant as a party. A pre-hearing conference was held on October 18, 1990, where the ALJ determined that there was ample cause to grant the FDIC's motion, and the ALJ issued a Recommended Order dismissing the Applicant on November 5, 1990. The Board of the FDIC ordered that Applicant be dismissed without prejudice on February 5, 1991.
   The Application for attorney fees was filed with the FDIC's OES on March 4, 1991, and served on, among others, Enforcement Counsel at the FDIC's San Francisco Regional Counsel's Office. The copy served on Enforcement Counsel did not contain a copy of the Applicant's statement of net worth as is required by the FDIC's regula- {{4-30-92 p.A-1830.2}}tions at 12 C.F.R. §308.114(c). See Transcript of Proceedings, dated April 30, 1991 ("Transcript") at 7. However, the Application filed with the OES did contain a copy of the net worth statement as is required to show the eligibility of the Applicant under the EAJA. See 5 U.S.C. §504(a)(3)(B).

B. The ALJ's Recommended Decision

   After considering the testimony and documentary, evidence presented by Enforcement Counsel and the Applicant, the ALJ made the following findings:
   1) The Application is in compliance with the jurisdiction requirements of 5 U.S.C. §504 and 12 C.F.R. §§308.113-.127, and Applicant has demonstrated eligibility to seek an award of attorney fees and expenses pursuant thereto.
   2) The Applicant was the prevailing party as to all issues in the underlying litigation.
   3) The FDIC's position in the underlying litigation was not shown to be substantially justified.
   4) No special circumstances were shown which would make an award unjust.
   5) The Applicant did not unduly prolong the underlying or instant proceedings.
   6) The Applicant is entitled to an award of attorney fees and expenses in the amount of $4,041.85.
R.D. at 5.

C. FDIC's Exceptions

   The FDIC filed exceptions to the ALJ's findings of fact and conclusions of law on grounds that: 1) the Application does not comply with the regulatory procedural requirements needed to establish Applicant's eligibility1for an EAJA award since he failed to serve a net worth statement on Enforcement Counsel; 2) the position taken by the FDIC in the underlying action against Applicant was substantially justified; and 3) special circumstances exist which would make an award of attorney fees and expenses unjust.

III. DISCUSSION

   Based upon a thorough review of the testimony, the documentary evidence, the briefs and arguments of the parties and the ALJ's Recommended Decision, the Board concurs with the ALJ's finding that the Application should be considered and that the Applicant demonstrated eligibility to seek an award of attorney fees, but finds that the FDIC's position in the underlying action was substantially justified.

A. The Application

   Enforcement Counsel maintains that since the Application served on the regional office did not contain a copy of the Applicant's net worth statement, the filing was therefore defective and the Application should be summarily dismissed. Answer at 10. The requirement that an applicant under the EAJA submit an application within thirty days of final judgment is "a mandatory, jurisdictional condition." Monark Boat Co. v. NLRB, 708 F.2d 1322, 1327 (8th Cir. 1983). Additionally, an application that is incomplete or does not demonstrate the requirements that is incomplete or does not demonstrate the requirements of eligibility under the EAJA is barred from being considered for an award. See Olson v. Norman, 830 F.2d 811, 821 (8th Cir. 1987) (application did not specifically allege that United States was not substantially justified); Naporano Iron and Mutual Co. v. United States, 825 F.2d 403, 404 (Fed. Cir. 1987) (application lacked contemporaneous records of attorney fees and expenses); United States v. Hopkins Dodge Sales, Inc., 707 F. Supp. 1078, 1081 (D. Minn. 1989) (holding that the applicant's showing of eligibility is not merely a notice requirement but is jurisdictional and must be filed within thirty days); but see Dunn v. United States, 775 F.2d 99, 104 (3rd Cir. 1985) (defects in an EAJA application are not jurisdictional so long as the application is filed within 30 days and where permitting supplementation will not prejudice the government).
   The "limitations and conditions upon which the Government consents to be sued must be strictly observed and exceptions thereto are not to be implied." Soriano v. United States, 352 U.S. 270, 276 (1957). The EAJA is a waiver of sovereign immunity and as such must be strictly construed in favor of the sovereign. Ruckelshaus v. Sierra Club, 462 U.S. 680 (1983).

   [.1] In this matter, the Application filed with the OES complied with the EAJA eligibility requirements. However, the FDIC's regulations state that the application shall be


1Eligibility under the EAJA requires that the Applicant have a net worth of less than $2,000,000. 5 U.S.C. §504(2)(3)(B).
{{4-30-92 p.A-1830.3}}served on all parties, "except that statements of net worth shall be served only on counsel for the FDIC." 12 C.F.R. §308.114(c). Thus, the Application served on Enforcement Counsel technically did not comply with the FDIC's regulations which implement the EAJA since it did not contain a net worth statement. While the FDIC's regulations implementing the EAJA have the force of law, see United States v. Messer Oil Corp., 391 F. Supp. 557, 561-62 (W.D. Pa. 1975), and failure to comply with them may therefore constitute a jurisdiction defect, see Hopkins Dodge Sales, 707 F. Supp. at 1081, the Board has the authority to modify or waive its own regulatory requirements in particular situations. See Chevron U.S.A., Inc. v. Natural Resources Defense Counsel, 467 U.S. 837, 843 (1984). Despite Applicant's technical noncompliance with FDIC regulations, the Board may waive strict compliance with the regulations if the facts presented demonstrate that no prejudice to the FDIC resulted. See generally Dunn, 775 F.2d 99.
   The Applicant argues that there was no prejudice because, despite the improper service, Enforcement Counsel had, in fact, a copy of the net worth statement. The Board takes notice that the Applicant prematurely filed a request for attorney fees with the OES in December 1990, which included a copy of the Applicant's net worth statement. This application was rejected as premature since the Board had not yet rendered a decision. While, as a technical matter, the Applicant can not rely on this improper filing as a cure to its subsequent defective service, the Board finds no prejudice to the FDIC, since Enforcement Counsel did in fact have the benefit of a copy of the statement prior to the hearing —the same statement that was filed with the OES, and since Enforcement Counsel did have ample opportunity to challenge the net worth statement at the hearing.2See Transcript at 10. Therefore, in light of all the circumstances of this case, the Board will consider the Application.

B. Substantial Justification

   The Applicant has alleged that the FDIC was "premature" in naming him in the FDIC's Order and Notice on August 10, 1990, and therefore, the action was not substantially justified. Application at 2. The EAJA permits an award for fees and expenses to an applicant unless the position of the agency is substantially justified or special circumstances make an award unjust. 5 U.S.C. §504(a)(1); see also 12 C.F.R. §308.118. Under the EAJA, the FDIC bears the burden of showing that its position was substantially justified. See Kemp v. Bowen, 822 F.2d 966, 967 (10th Cir. 1987). To do so, the FDIC must prove that its case had a reasonable basis in law and in fact. Id.
   The term "substantially justified' means "justified in substance or in the main—that is, justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, 487 U.S. 552, 565 (1988). Further, "[a] position can be justified even though it is not correct . . ." Id. at n.2. The "position of the agency" means the position taken in the adversary adjudication and the action or failure to act by the agency upon which the adversary adjudication is based. 5 U.S.C. §504(a)(3)(E).
   Thus, the government's success or failure on the merits at each level of the proceedings may be evidence of whether its position was substantially justified, but that success or failure alone is not determinative of the issue. Hadden v. Bowen, 851 F.2d 1266, 1267 (10th Cir. 1988) (citing Pierce, 487 U.S. 552). To determine whether the FDIC's position was substantially justified, the Board will consider the "totality of the circumstances." See Iowa Express Distribution, Inc. v. N.L.R.B., 739 F.2d 1305, 1309-10 (8th Cir. 1984); see also Jean v. Nelson, 863 F.2d 759, 767 (11th Cir. 1988) (discussing several factors to consider in determining reasonableness).

   [.2] A temporary cease-and-desist order is an emergency measure used by the FDIC, in this case, to attempt to stop the wrongful dissipation of assets of a financial institution. See 12 U.S.C. §1818(c). The FDIC first discovered on August 6 that the allegedly improper payments were taking place, with the first one occurring on July 13 and the last on August 7, totally $180,000. To prevent further dissipation, the FDIC issued the Order on August 10, the same day the Bank failed. Thus, the FDIC's San Francisco Regional Office ("Regional Office") had three to four days to gather data on a


2After reviewing the net worth statement, Enforcement Counsel conceded that the Applicant met the net worth eligibility requirements to seek an award under the EAJA. FDIC Status Report, filed with OES August 6, 1991.
{{4-30-92 p.A-1830.4}}total of seventeen respondents named, review it, and send it to Washington, D.C., for final approval of the section 8(c) action. See Pfeiffer Testimony, Transcript at 31.
   The FDIC has the statutory obligation to identify all other officers and directors who stood to directly or indirectly benefit from the transfer of funds to the law firms, or who have otherwise acted with reckless disregard for the banking laws. See 12 U.S.C. §1818(b)(6)(A). The statute also provides that the FDIC may seek restitution from parties who have been unjustly enriched in connection with such a violation or practice, or if the violation of practice involved a reckless disregard for the law or any applicable regulations or prior order of the appropriate Federal banking agency. 12 U.S.C. §1818(b) (6)(A).
   To assess the reasonableness of the FDIC's initiating an enforcement action against the Applicant, the Board must consider the facts available to the FDIC at the time the decision was made to issue the Order and Notice.3In preparing the Order and Notice, the Regional Office relied on a draft of the FDIC Report of Examination which was under preparation during this time. The Report listed the Applicant as the current Senior Vice President. Also, the Regional Office knew the Applicant had been employed by the Bank since April 1987, became Senior Vice President in February 1990, and served on the Management Committee and Senior Loan Committee. See Pfeiffer Testimony, Transcript at 33. Based on such positions held, the Board finds that it was reasonable for the FDIC to believe that the Applicant was in a position to know of the deteriorating condition of the Bank, and was in a position to have participated in the transfer of funds.
   The Board also holds that it was reasonable for the FDIC to believe, based on the information available to it at the time, that the Applicant was still employed by the Bank at the time the transfers took place, despite his resignation on July 31, 1990. The Board is not persuaded that the FDIC should have known or discovered that Applicant had resigned, particularly in light of the extreme time constraints under which the FDIC was operating. The FDIC had no notice that the Applicant had resigned from the Bank on July 31, 1990, until his Answer was filed on September 10, 1990. Pfeiffer Testimony, Transcript at 28–29. Even if the FDIC should have known on August 6, 1990, that Applicant had resigned, the Applicant was, in fact, employed by the Bank at the time the first transfer took place.4
   As the ALJ recognized, the FDIC was "under significant time constraints in conducting its investigation and that it acted to the best of its ability in the public interest to prevent significant ongoing losses to an institution for which it was the responsible regulator." Transcript at 40–41. In light of the time constraints, the ALJ also noted that "it may be impossible to conduct an investigation in sufficient detail to avoid naming individuals who are not responsible for unsafe or unsound banking practices which are the subject of the notice." Id. at 41. Thus, the Board finds that the FDIC was reasonable in concluding that the Applicant was employed in a position to have participated in the transfers at the time they took place.
   The ALJ considered this case to be a matter of balancing the equities and shifting the burden to the party who ultimately is determined to have made a "mistake."5Id. at 43; R.D. at 4. This is not the standard established by the EAJA. See Pearce, 487 U.S. 552, 565 n.2. Under the EAJA, merely because the government makes a mistake does not justify a payment of fees to an Applicant. Id.; Frey v. Commodity Futures Trading Commission, 931 F.2d 1171, 1174 (7th
3The decision to name the Applicant was a joint decision made by the FDIC's San Francisco Regional Director ("Supervision"), Assistant Regional Director, Regional Counsel, and several Regional Attorneys. See Declaration of James A. Clark, Regional Counsel of the FDIC. The final Notice was signed by John W. Stone, Associate Director, Division of Supervision, FDIC.

4The ALJ appeared to be under the mistaken impression that the Applicant was not employed by the Bank at the time that any of the transfers took place. See R.D. at 4 and 4 n.16. While the Board takes notice that the Applicant was on vacation from June 22, 1990, to July 31, 1990, a bank officer's responsibilities do not abate during a temporary absence from the institution.

5The ALJ stated at the hearing, "I don't think anybody takes issue with the role of the FDIC or the constraints within which it was operating. The difficulty lies in balancing the equities." Transcript at 41. The ALJ continued, asking FDIC Enforcement Counsel who should bear the burdens flowing from such a mistake. Id. at 43.
   The ALJ concluded: "I understand you didn't have enough time to do it right. But when you have done it wrong, who is going to get stuck is what the question is that is present here it seems to me.
* * *

   Somebody should be paying for that. I don't think it is the Applicant." Id. at 45.
{{4-30-92 p.A-1830.5}}Cir. 1991); Iowa Express Distribution, 739 F.2d 1305. In Frey, the Court found that the Commodity Futures Trading Commission made a mistake by instituting an enforcement proceeding against a broker. The court held that the agency's position was not so wrong, however, as to be unreasonable. Id. at 1178.
   The "American rule" is that each party is responsible for the payment of his or her own attorney fees, with the exception of certain common law and statutory exceptions, such as the EAJA. The purpose of the EAJA is "to penalize unreasonable behavior by the government without impairing the vigor and flexibility of its litigating position." Pullen v. Bowen, 820 F.2d at 105, 107 (4th Cir. 1987). Fee shifting is not automatic and the agency's lack of substantial evidence does not raise a presumption that the agency was not substantially justified. Id. at 108 (citations omitted). Additionally, a lack of substantial evidence may indicate, but does not conclusively establish, that the government's position concerning a claim was not substantially justified. Hadden v. Bowen, 851 F.2d at 1269. Thus, the Board concludes that the FDIC's mistake alone does not mandate the award of fees under the EAJA.
   At the time the FDIC was preparing the Order and Notice, the FDIC also had information that the Applicant was named as a defendant in a RICO lawsuit and that he had either recently or was about to be charged by the Federal Reserve in a matter concerning assessment of civil money penalties concerning the holding company of the Bank. Pfeiffer Testimony, Transcript at 35. Since the Bank had been making payments to law firms on behalf of officers and directors who were anticipating being involved in litigation due to the Bank's deteriorating condition, the Board finds that it was reasonable for the FDIC to believe that the Applicant may also have been involved in this "selfinsurance fund" for purposes of defending his own actual or potential liability.
   Additionally, there was uncertainty over identifying who was involved in, or who directly or indirectly benefitted from, the transfers of funds. Pfeiffer Testimony, Transcript at 30–33. On August 6, 1990, the San Francisco Regional Office requested that its on-site examiner forward all banks records concerning the transfers for review. Id. The FDIC's San Francisco Assistant Regional Director ("Assistant Regional Director") testified that although many of those involved were clearly identifiable from these documents, some of the notations and initials were not clearly identifiable and that there was not enough time to investigate prior to the Bank's closure. Pfeiffer Testimony, Transcript at 31. Thus, the documents received at the time the decision was made were not considered to be exhaustive of all the parties who may have participated or stood to benefit, either directly or indirectly from the transfers. Indeed, two of the transfers did not designate any particular officer or director of the Bank who would stand to benefit. See Transfers of August 6, 1990, to Crowley & Cuneo, and Christensen, White, Miller, Fink & Jacobs, p. 3–4, supra. Further, the Assistant Regional Director testified that he was not even certain that he had identified all the transfers that took place. Transcript at 31.
   Finally, the Board takes into consideration the timing of the FDIC's dismissal of the Applicant from the underlying action. An agency has a responsibility to continually evaluate its position in light of the surrounding facts and circumstances. See N.L.R.B. v. Hotel & Restaurant Employees, 107 F.R.D. 231, 239 (1985). The term "position" includes the government's position both in the underlying agency action, and any subsequent proceedings. See Hadden v. Bowen, 851 F.2d 1266, 1267 (10th Cir. 1988).
   Once the Applicant filed his answer on September 10, 1990, the FDIC was made aware for the first time that the Applicant may not have had any direct or indirect role in, or benefit from, the transfer of funds. The Board finds that, under the facts of this case, five weeks after receiving the answer is not an unreasonable time period for the FDIC to have investigated applicant's claims and moved to dismiss him from the proceedings which involved seventeen other respondents. See Clark v. United States, 3 Cl. Ct. 194 (1983) (where government conceded liability and stipulated to entry of judgment for plaintiff, government's position was reasonable and no fees were awarded).

V. CONCLUSION

   [.3] The Board holds that the eligibility and filing requirements of the EAJA and the FDIC's implementing regulations are jurisdictional and failure to file a complete ap- {{4-30-92 p.A-1830.6}}plication within thirty days acts as a bar to any recovery. The service requirements under the FDIC's implementing regulations may, however, be cured absent any prejudice to the FDIC. The Board finds no prejudice in this case and, therefore, concludes that the Applicant has demonstrated eligibility to seek an award under the EAJA. Additionally, for the reasons set forth herein, the Board finds that the FDIC was substantially justified in initiating the underlying proceeding against Applicant, based on the best information and belief available to it at the time. Therefore, Applicant is not entitled to an award of attorney fees under the EAJA. However, the Board has determined that the unique factual circumstances involved here, in particular the fact that the Applicant had resigned from the Bank, or was otherwise not present at the time the transfers occurred and received no benefit from the payments, justify the exercise of the Board's discretion to pay the Applicant his fees and expenses. Nevertheless, the Board would expect that in the future, any director or officer named in a notice of charges for alleged violations that occurred subsequent to his resignation from the institution, or who claims other defenses such as lack of involvement in the alleged violation, would immediately contact the FDIC's regional counsel with such information and provide substantiation in order to prevent the incurrence of legal fees. The Board will not condone the incurrence of unnecessary legal expenses in the future.

ORDER

   The Board of Directors of the Federal Deposit Insurance Corporation, having considered the entire record in this proceeding, hereby finds that the FDIC was substantially justified, as that term is interpreted with respect to the Equal Access to Justice Act, in naming Applicant in the Temporary Order to Cease and Desist and Notice of Charges and of Hearing issued on August 10, 1990. However, the Board has determined that the unique factual circumstances involved here, in particular the fact that the Applicant had resigned from the Bank, or was otherwise not present at the time the transfers occurred, justify the exercise of the Board's discretion to pay the Applicant his fees and expenses.
   ACCORDINGLY, IT IS HEREBY ORDERED THAT, the Application for attorney fees and expenses under the Equal Access to Justice Act, submitted by Dan S. Geiger, be and hereby is denied.
   IT IS FURTHER ORDERED, that the Applicant be awarded his attorney fees and expenses incurred in defending the underlying action, as well as pursuing the EAJA Application, in the amount of $4041.85. Enforcement Counsel shall make arrangements for such payment.
   IT IS FURTHER ORDERED, that the Executive Secretary, or his designee, is instructed to execute and serve copies of the attached Decision and Order on counsel for all parties and on the Administrative Law Judge.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 29th day of October, 1991.

/s/ Hoyle L. Robinson
Executive Secretary

___________________________________________________
RECOMMENDED DECISION

In the Matter of
Janice J. France, et al., and
First Pacific Bank
Beverly Hills, California
(Insured Nonmember State Bank)

Steven M. Charno, Administrative Law
Judge:

   On March 4, 1991, Dan S. Geiger ("Applicant") filed an Application for Recovery of Attorney's Fees and Other expenses ("Application") in the amount, as amended, of $4,041.85 from the Federal Deposit Insurance Corporation ("FDIC") pursuant to the Equal Access to Justice Act, 5 U.S.C. §504, and the FDIC's Rules of Practice and Procedures, 12 C.F.R. §§308.113 et seq. On March 25, 1991, the FDIC filed an Answer objecting to the Application on the following grounds: (1) Applicant did not meet the eligibility requirements of 12 C.F.R. §§308.116 and 308.121 because he failed to file a net worth statement with the Applications,1(2) Applicant did not identify an


1The March 4, 1991 Application forwarded to my by the FDIC's Executive Secretary contained a July 31, 1990 statement of Applicant's net worth in compliance with the FDIC's Rules. Accordingly, I reject the FDIC's first
(Continued)

{{4-30-92 p.A-1830.7}}"issue" as to which he prevailed as required by 12 C.F.R. §308. 120(a)(2),2(3) the Application was not accompanied by a "proper statement of fees and expenses" as required by 12 C.F.R. §§308.120(a)(3) and 308.122,3(4) the Application sought reimbursement of fees at a rate in excess of $75.00 per hour,4(5) the Application included fees incurred after I issued my Decision in the underlying litigation,5(6) the FDIC's position in the underlying litigation was substantially justified and (7) special circumstances exist which would make a fee award unjust. Because the FDIC's Answer specifically denied determinative allegations of the Application,6a hearing was held before me in Los Angeles, California on April 30, 1991.7The procedural schedule was therefore suspended at the joint request of the parties to allow them an opportunity to explore settlement.

DISCUSSION

   The FDIC was informed during April of 1990 that Applicant was a senior vice president of First Pacific Bank of Beverly Hills, California ("Bank") and thereafter made no attempt to ascertain whether he continued to be employed by the Bank.8It is uncontested that (1) Applicant resigned his Loan Committee membership at the Bank on May 31, 1990, (2) Applicant was on vacation and not present at the Bank between June 22 and July 31, 1990 and (3) Applicant resigned as an officer and employee of the Bank as of July 31, 1990.9At a July 11, 1990 meeting, the Bank's Board of Directors was allegedly informed for the first time that the FDIC found the Bank to be insolvent. At a meeting the following day, members of the Bank's Board of Directors were allegedly informed by the California State Banking Department ("State") of regulatory findings of insolvency and imminent closure. Applicant was not present at either of these meetings,10and the record contains no evidence that the FDIC (1) ever possessed any evidence that Applicant was made aware of either regulatory finding prior to the issuance of the Notice of Charges and of Hearing ("Notice") in the underlying proceeding11or (2) had an adequate factual basis for inferring such an awareness.
   After the latter meeting, the Bank allegedly made the following transfers of funds: (1) a July 13, 1990 transfer of $30,000 to the law firm of Keck, Mahin & Cate, (2) an August 2, 1990 transfer of $25,000 to the same firm, (3) an August 6, 1990 transfer of $25,000 to the law firm of Crowley & Cuneo, (4) an August 6, 1990 transfer of $50,000 to the law firm of Christensen, White, Miller, Fink & Jacobs, (5) an August 7, 1990 transfer of $25,000 to the law offices of Ronald


1 Continued:defense. While that statement was initially served on FDIC enforcement counsel in December of 1990, a clerical error resulted in a failure to again serve the statement at the time the Application was filed. That error was remedied, and the FDIC enjoyed and exercised an opportunity to inquire into the facts set forth in the statement. I therefore find that untimely service of the statement was not shown to have prejudiced the FDIC in any way. Finally, the FDIC was unable to identify any regulatory or judicial authority for its position that untimely service is a jurisdictional defect which may not be cured.

2Given the undisputed fact that Applicant prevailed as to every issue in the proceeding, I find this argument disingenuous.

3The statement of fees and expenses submitted with the Application was shown to be identical in format to the statements submitted by Applicant's counsel to his clients. Moreover, the statement accompanying the Application was sufficiently detailed to permit the FDIC to successfully challenge several items appearing thereon and to request further substantiation for other items. For these reasons and given the FDIC's inability at the hearing to explain why the statement was other than "proper," I reject this defense.

4No basis for this allegation was ever advanced by the FDIC, and the allegation was conclusively disproved by the credited testimony of Applicant's counsel.

5Counsel for the FDIC effectively abandoned this defense when he conceded at the hearing that, if the Application was "properly submitted," it was permissible for the Applicant to seek recovery of the additional fees and expenses incurred in prosecuting the Application. For the reasons set out in note 1, supra, I find that the Application was properly submitted.

6Although the FDIC's Answer denied Applicant's resignation from First Pacific Bank as of July 31, 1990, this fact was uncontested at the hearing on the Application.

7I hereby adopt and reaffirm all of my rulings at the hearing.

8The FDIC's Assistant Regional Director so testified.

9The FDIC never offered any evidence in contravention of Applicant's September 10, 1990 documented Answer to this effect. Indeed, counsel for the FDIC conceded on October 18, 1990 that Applicant had never been involved in any of the unsafe or unsound practices which were the subject of the underlying proceeding.

10The FDIC's Assistant Regional Director so testified.

11Applicant was not a named recipient of the State's July 23, 1990 letter which iterated the findings announced at the July 12 meeting.
{{4-30-92 p.A-1830.8}}D. Jaman and (6) a second August 7 transfer of $35,000 to Jaman.
   By Notice issued August 10, 1990, the FDIC charged that Applicant12had engaged in unsafe or unsound banking practices by participating in the July and August fund transfers in anticipation of the Bank's insolvency and closure. By Answer filed September 10, 1990, Applicant denied culpability on the ground that he had not taken any action on behalf of the Bank since June 22, 1990. On September 24, 1990, the FDIC filed a six-page request that Applicant produce a variety of documents, none of which related to the question of Applicant's presence at the Bank between June 22 and July 31 or his employment status on the latter date. By motion filed October 15, 1990, the FDIC sought to amend the Notice by removing the names of several respondents, including that of Applicant. At the prehearing conference on October 18, 1990, counsel for the FDIC asserted that good cause to grant the motion existed because Applicant was "in no way. . .involved" in the alleged unsafe or unsound practices and that the FDIC's "investigation showed that neither of the respondents in any way participated in the transfer of payments, nor were any of the funds transferred for or on behalf of their benefit." In a Decision issued November 5, 1990, I found that Applicant was "not in any way responsible for the unsafe or unsound banking practices alleged in the Notice" and recommended that he be dismissed from the action. By Decision of February 5, 1991, the Board of Directors of the FDIC accepted my recommendation and ordered that Applicant be dismissed from the underlying proceeding.
   The FDIC contends that its position in the underlying litigation was substantially justified and that a fee award in this case would be unjust because it had "reasonable cause" at the time the Notice was issued to believe that Applicant:
had engaged in unsafe or unsound banking practices by causing, participating in, or benefitting from, the transfers of funds with the knowledge that the Bank was in critically poor financial condition and about to be closed, and that he acted with a reckless disregard for the laws in place to prevent such practices.13The essence of the FDIC's defense is that, because its personnel held an unverified and incorrect belief that Applicant was an officer of the Bank at the time of the alleged unsafe or unsound practices, it was "reasonable, prudent, and substantially justified"14for the FDIC to bring suit against the Applicant.15Examination of the FDIC's Assistant Regional Director at the hearing established that the agency never possessed a single piece of evidence, other than its mistaken belief concerning his employment status, which would provide factual support for its position that Applicant could have (1) caused any of the challenged transactions, (2) participated in any of those transactions, (3) benefitted from any of those transactions, (4) known of the regulatory findings of insolvency and imminent closure or (5) taken any action which might be though to demonstrate a reckless disregard for any law.
Thus, the question before me is whether employment as an officer of an insured institution, without more, renders the employee subject to suit for each and every improper action allegedly taken by the institution. It cannot, especially where knowledge of impropriety is an element of the offense. No government agency has the right to cause a citizen to incur significant legal costs simply because the agency is too rushed or too incompetent to conduct an adequate investigation before it files suit.16Even if it were determined that the FDIC's incorrect belief that Applicant was an officer of the Bank provided "substantial justification" for issu-
12The Notice incorrectly identified Applicant as "Daniel S. Geiger."

13Answer and Objection of the FDIC to Respondent Geiger's Application for Recovery of Attorney's Fees and Other Expenses at 20–21.

14Id. at 21.

15While not indicated in any of the FDIC's pleadings, it may be inferred from the testimony of the agency's Assistance Regional Director that the inclusion of Applicant's name in the Notice also took place because the latter either was or was about to become the subject of unproven allegations in other forums. Given the total lack of probity of the charges made about Applicant in this proceeding, it hardly seems necessary to point out that untested allegations in other proceedings are without probative value and cannot be relied upon as a reasonable factual basis for proceeding against Applicant in this case.

16This conclusion would appear to be of even greater applicability where, as here, the agency's investigation was not even sufficient to determine whether Applicant was, in fact, an officer of the Bank at the time the alleged practices took place.
{{6-30-92 p.A-1830.9}}ance of the Notice, the agency's purported justification ceases to exist with the filing of the Applicant's documented Answer on September 10. Instead of abandoning the action against Applicant at that juncture, the FDIC waited two weeks and filed discovery requests, thereby increasing Applicant's cost of defending the underlying action.17For the foregoing reasons,18 I find that the FDIC's position was not shown to be substantially justified and that no special circumstances were shown to exist which would make a fee award unjust in this case.19

FINDINGS OF FACT

   1. The Application is in compliance with the jurisdiction requirements of 5 U.S.C. §504 and 12 C.F.R. §§308.113 et seq., and Application has demonstrated eligibility to seek an award of attorney's fees and expenses pursuant thereto.
   2. The Applicant was the prevailing party as to all issues in the underlying litigation.
   3. The FDIC's position in the underlying litigation was not shown to be substantially justified.
   4. No special circumstances were shown which would make an award unjust.
   5. The Applicant did not unduly prolong the underlying or instant proceedings.
   6. The Applicant is entitled to an award of attorney's fees and expenses in the amount of $4,041. 85.
   Based upon the entire record in this case, I hereby issue the following recommended:

ORDER

   The Federal Deposit Insurance Corporation shall reimburse Dan S. Geiger for attorney's fees and expenses in the amount of $4,041.85.
   Done at Rosslyn, Virginia, this 5th day of August, 1991.

/s/ Steven M. Charno
Administrative Law Judge


17The statement of fees and expenses attached to the Application so indicates.

18Given my findings that the FDIC has no factual justification for proceeding against Applicant, I find the arguments that the FDIC lacked legal justification to be moot.

19Pursuant to my order at the hearing, counsel for Applicant on June 28, 1991 submitted an updated, amended and uncontroverted statement of fees and expenses in the amount of $4,041.85.

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