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FDIC Enforcement Decisions and Orders

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   [5182] In the Matter of Henry P. Massey, First Bank, Houston, Texas, Docket No. FDIC-91-211e (9-15-92).

   The FDIC Board, rejecting an administrative law judge's recommendation, denies motion for entry of a default judgment and orders the ALJ to hold a hearing on the merits. Respondent's reply to ALJ's show cause order was postmarked within twenty days after personal service, but not received by FDIC until after ALJ's recommended decision was issued on the 21st day.

   [.1] Practice and Procedure — Default Orders
   Default orders are warranted when respondent has failed to file an answer within twenty days. Failure to answer is deemed consent to entry of an order granting relief sought by the notice.

   [.2] Practice and Procedure — Answer to Notice — Filing by Mail
   Filing of an answer may be accomplished by mailing the papers by first class mail and is effective upon deposit in a mail box or at the post office. An answer bearing a postmark within the twenty-day period for filing is timely filed.

In the Matter of
HENRY P. MASSEY,
individually and as an officer,
director, and/or person
participating in the conduct
of the affairs of
FIRST BANK
HOUSTON, TEXAS
(Insured State Nonmember Bank)
DECISION AND ORDER ON
NOTICE OF INTENTION
TO PROHIBIT

FDIC-91-211e

DECISION

I. Introduction

   This matter is before the Board of Directors ("Board") of the Federal Deposit Insur-
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ance Corporation ("FDIC") following the issuance of a Recommended Decision on Default ("Recommended Decision") by Administrative Law Judge Arthur L. Shipe ("ALJ").1 ALJ Shipe's Recommended Decision found that Respondent Henry P. Massey, individually, and in his capacity as an officer, director, and/or person participating in the conduct of the affairs of First Bank, Houston, Texas, failed to answer any of the matters alleged in the proceeding in a timely manner, and has failed to show any good cause why the Motion for Default should not be granted. The ALJ indicated that he was satisfied that the Respondent had received actual notice of the proceeding. The ALJ therefore recommended the issuance of an order prohibiting Mr. Massey from further participation in the conduct of the affairs of any insured depository institution pursuant to section 8(e) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(e).
   Following a thorough review of the Recommended Decision and the entire record in this proceeding, the Board finds that a default order against the Respondent is not warranted.

II. Procedural History

   On September 9, 1991, a Notice of Intention to Prohibit from Further Participation ("Notice") was issued to Respondent. Pre. Plead. at 59–75. FDIC Enforcement Counsel filed a motion requesting entry of an order of default on December 18, 1991, when Respondent failed to answer the prohibition notice within twenty days as required. Pre. Plead. at 49–51. On December 31, 1991, the ALJ issued a Show Cause Order giving the Respondent ten days to show cause why the FDIC motion for default should not be granted. Pre. Plead. at 28. Service of the Show Cause Order was attempted by regular first class mail as well as by United States certified mail; however, all letters sent by certified mail were returned to the ALJ marked "Unclaimed."
   On April 13, 1992, counsel for the FDIC was ordered to effect personal service upon the Respondent of the December 31, 1991, Show Cause Order. The sworn affidavit of A.D. Roth dated May 22, 1992 which has been filed in this proceeding, attests to personal service of the following documents: The Notice of Intention to Prohibit from Further Participation, the notice of Appearance by FDIC Enforcement Counsel, the Motion of FDIC for Entry of a Recommended Decision on Default, and the Show Cause Order. On June 11, 1992, the Recommended Decision was filed with the FDIC Board of Directors. Then, on June 15, 1992, the Office of the Executive Secretary of the FDIC received Respondent's Answer to Notice of Intention to Prohibit from Further Participation. The postmark indicated that the Answer had been mailed on June 10, 1992.

III. Discussion

   [.1] Default orders are warranted when the Respondent has failed to file an Answer within twenty days. 12 C.F.R. § 308.19(a) and (c). Failure to respond within the time period prescribed by the FDIC's Rules of Practice and Procedures is deemed to be a waiver of the right to appear and to contest the allegations of fact contained in the Notice and is deemed a consent by that Respondent to entry of an order grating any proper relief that is sought by the Notice.

   [.2] In this case, however, a default order is not warranted. It appears that ALJ Shipe's Recommended Decision on Default was issued after Respondent's Answer was posted. Section 308.10 of the FDIC's Uniform Rules of Practice and Procedure provides that filing may be accomplished by mailing the papers by first class mail. 12 C.F.R. § 308.10(b)(3). Further, 12 C.F.R. § 308.12(b)(ii) provides that filing is deemed to be effective in the case of first class mail "upon deposit in or delivery to an appropriate point of collection." 12 C.F.R. § 308.12(b)(ii).
   Despite the fact that FDIC Enforcement Counsel made numerous attempts to serve Respondent with the papers, the record indicates that he did not receive them until May 22, 1992, when personal service was accomplished. The June 10, 1992, postmark on the envelope which transmitted Respondent's Answer is evidence that Respondent's Answer was filed within twenty days of the May 22, 1992, service date as required by 12 C.F.R. § 308.19(a). Further-


1 References to the record shall be as follows:
Recommended Decision, "R.D. at ____."
Prehearing Pleadings, "Pre. Plead. at ____."
{{11-30-92 p.A-2078}}more, because Respondent received two orders at the same time, one with a ten day response time and the other with a twenty day response time, it was not unreasonable for Respondent to file his papers by the twentieth day. Allowing the Respondent to have the full twenty days to respond will cause no prejudice to the FDIC. See In the Matter of W. Scott Maxwell, FDIC Enf. Dec. 89-144k (June 26, 1990).

IV. Conclusion

   Therefore, pursuant to the FDIC's rules regarding service and considerations of relative harm and prejudice to the respective parties, a default order against the Respondent is not warranted. The Board orders this case to proceed to the merits.

ORDER

   The Board of the FDIC has considered the entire record in this proceeding, including the ALJ's Recommended Decision and Order. The Board hereby DENIES FDIC Enforcement Counsel's Motion for Entry of an Order of Default and ORDERS the ALJ to proceed to hearing on the merits of the charges set forth in the Notice.
   IT IS FURTHER ORDERED, that his Order shall be effective twenty (20) days from the date of this ORDER. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such time as, any provision of this Order shall have been modified, terminated, suspended or set aside by the Board.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 15th day of September, 1992.
   /s/ Robert E. Feldman
   Deputy Executive Secretary

--------------------

RECOMMENDED DECISION

In the Matter of
Henry P. Massey,
First Bank
Houston, Texas
(Insured State Nonmember Bank)
FDIC-91-211e
Arthur L. Shipe, Administrative Law
Judge:

   This matter was instituted by the Board of Directors of the Federal Deposit Insurance Corporation, by issuance of a notice of intent to prohibit the above respondent from participation in the affairs of federally insured depository institutions, pursuant to section 8(e) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(e)).
   Since issuance of the Notice on September 9, 1991, respondent has failed to note his appearance in this proceeding, and has likewise failed to answer any of the allegations contained within the prohibition notice. Accordingly, counsel for the Federal Deposit Insurance Corporation filed on December 18, 1991, a motion requesting entry of an order of default.
   On December 31, 1991, I issued an Order directing the respondent to show cause why the FDIC motion for default should not be granted. As respondent had not appeared in the proceeding, service of my Order was attempted, in addition to Regular First Class Mail, by United States Certified Mail, as required by Uniform Practice Rule 308.11(c)(2). All attempts to serve respondent via certified mail were unsuccessful, as all such letters addressed to the respondent were returned to this office marked "Unclaimed."
   Accordingly, on April 13, 1991, I ordered counsel for the FDIC to effect personal service upon the respondent, of my Show Cause Order dated December 31, 1991. A sworn affidavit dated May 22, 1992, has been filed, attesting to personal service of Mr. Massey of the following documents: the Notice of Intent to Prohibit from Further Participation, the Notice of Appearance by FDIC Enforcement Counsel, the Motion of FDIC for Entry of a Recommended Decision on Default, and my Show Cause Order.
   Considering the facts of record, and for the reasons discussed more thoroughly below, the FDIC Motion for Order of Default is GRANTED.
   Uniform Practice Rule 308.19 provides in pertinent part as follows:

    (c) Default - (1) Effect of Failure to answer. Failure of a respondent to file an answer required by this section within the time provided constitutes a waiver of his or her right to appear and contest the allegations in the notice. If no timely answer is filed, Enforcement counsel may file a motion for entry of an order of default. Upon a finding that no good cause has been shown for the failure to file a timely answer, the administrative law judge shall file with the Board of Direc-
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    tors a recommended decision containing the findings and the relief sought in the notice. Any final notice issued by the Board of Directors based upon a respondent's failure to answer is deemed to be an order issued upon consent.
   Respondent Massey has failed to answer any of the matters alleged in this proceeding, and has failed to show any good cause why Enforcement Counsel's Motion for Default should not be granted. Additionally, I am satisfactorily convinced that the respondent has actual notice of this proceeding, and has been afforded every reasonable opportunity in which to assert his rights and contest this matter. His failure, therefore, constitutes a waiver of his right to appear and challenge the allegations set forth in the Notice.
   The Notice evidences a pattern of acts, omissions, practices, and violations on the part of respondent, in clear breach of his fiduciary duties as a former officer and director of First Bank, Houston, Texas. Through his personal dishonesty, concealment of material facts, and presentation of false information to the bank's Loan Committee, the Board of Directors, and to external auditors and bank examiners, the respondent has clearly engaged in unsafe, unsound, and fraudulent banking practices for which he should be barred.
   Accordingly, I recommend that the Board of Directors of the Federal Deposit Insurance Corporation issue against respondent an Order prohibiting him from further participation in the conduct of the affairs of any insured depository institution pursuant to section 8(e) the Act, 12 U.S.C. § 1818(e).
   So ordered, this 11th day of June, 1992.
   /s/ Arthur L. Shipe
   Administrative Law Judge
   Dated: June 11, 1992

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