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FDIC Enforcement Decisions and Orders

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   [5194] In the Matter of David D. McCune and Dana E. Payne, Community State Bank, Iola, Texas, Docket No. FDIC-92-206 (3-16-93).

   FDIC Board accepts administrative law judge's recommendation and issues a default decision and order of prohibition based on uncontroverted evidence of respondent's participation in numerous violations involving personal dishonest, and willful and continuous disregard for the bank's safety and soundness.

   [.1] Prohibition—Notice of Intention to Prohibit—Failure to Answer
   Respondents' failure to file answers, after proper notice and service of show cause orders on them, waives their right to contest allegations; all facts alleged in the notice are deemed admitted.

   [.2] Practice and Procedure—Answer—Failure to Answer—Prohibition Proceedings

In the Matter of
David D. McCune and
Dana E. Payne,
individually and as institution-affiliated
parties of
COMMUNITY STATE BANK
IOLA, TEXAS
(Insured State Nonmember Bank)
DEFAULT DECISION AND ORDER

{{5-31-93 p.A-2193}} FDIC-92-206e

I. Background

   This proceeding, brought by the Federal Deposit Insurance Corporation ("FDIC"), seeks removal of David D. McCune and Dana E. Payne ("Respondents"), individually and as institution-affiliated parties participating in the conduct of the affairs of Community State Bank, Iola, Texas ("Bank"), for extending credit utilizing allegedly forged bank notes.
   On August 19, 1992, the FDIC issued a Notice of Intention to Prohibit From Further Participation ("Notice"), pursuant to section 8(e) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(e), and the FDIC Rules and Regulations, 12 C.F.R. Part 308. Respondent McCune was a senior vice president of the Bank, and Respondent Payne was an employee. Notice at 3. The Notice alleges twelve instances in which Respondent McCune utilized forged notes to extend credit purportedly for automobile loans. However, liens were not recorded and vehicle titles were not obtained. Notice at 3–7. In two of these transactions, Respondent allegedly forged the notes himself. Notice at 5. In two other instances Respondent Payne allegedly forged the names of note holders at the request of Respondent McCune. The Notice alleges that these extensions of credit benefited Respondents and that a portion of these transactions exceeded the Bank's lending limits, in violation of the Texas Banking Commissioner Rules and Regulation, 7 TEX. ADMIN. CODE §12.4. Notice at 7–12.
   The Notice also directs Respondents to file an Answer within 20 days from the date of service. Notice at 13. Return receipts indicate that the Respondents acknowledged receipt of the Notice on September 15 and 21, 1992. However, both have failed to answer the Notice or otherwise respond. On October 29, 1992, Enforcement Counsel filed a Motion for Entry of an Order of Default ("Motion"). Respondents acknowledged receipt of this document on November 2 and on November 12, 1992, respectively, but have not responded to this Motion.
   On January 12, 1993, Administrative Law Judge Arthur L. Shipe ("ALJ") issued a Recommended Decision on Default. The ALJ states that he ordered Respondents to show cause why the motion for default should not be granted. Respondent Payne was personally served with the Order on December 2, 1992, and Respondent McCune on December 22, 1992. Neither responded. Accordingly, the ALJ granted the Motion and recommended issuance of an Order of Prohibition.

II. Regulatory Provisions

   [.1, .2] Section 308.19(a) of the FDIC Rules and Regulations provides that "[r]espondent shall file an answer as designated in the notice . . ."
   The directive of this rule could not be more clear. An Answer to the charges in the Notice must be filed by Respondents. Furthermore, consistent with this provision, the Notice specifically put Respondents on notice of the obligation to file an Answer. The Notice states: "[r]espondents are hereby directed, to file an answer to this NOTICE OF INTENTION TO PROHIBIT FROM FURTHER PARTICIPATION within 20 days from the date of service upon each Respondent." Notice at 13.

    Section 308.19(c) states:

    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.


   Decisions of the FDIC Board of Directors ("Board") have applied this default and waiver provision in similar removal and prohibition actions when a party fails to file an Answer. In the Matter of Paul J. Pluchacek, FDIC-86-6e, 2 P-H FDIC Enf. Dec. ¶5154 (1990). See also FDIC-86-35e, 2 P-H FDIC Enf. Dec. ¶5067 (1986) (default decision in which bank director was deemed to have consented to removal for improperly approving a loan in excess of the lending limit); FDIC-85-343e, 2 P-H FDIC Enf. Dec. ¶5085 (1987) (default decision concerning bank president removed for engaging in certain unsafe and unsound activities). Similarly, in this proceeding, Respondents' failure to file Answers waives their right to contest the allegations in the Notice and renders this an uncontested proceeding under section 308.19(c).
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III. Conclusion

   For the reasons set forth above, the Board hereby adopts and incorporates by reference the allegations contained in the Notice and the ALJ's Recommended Decision on Default and enters the following Order of Prohibition From Further Participation.

ORDER OF PROHIBITION FROM
FURTHER PARTICIPATION

   For the reasons set forth in the above Decision, and pursuant to section 8(e) of the FDI Act, 12 U.S.C. §1818(e), the Board of the FDIC hereby ORDERS that:
   1. David D. McCune and Dana E. Payne shall not participate in any manner in the conduct of the affairs of the Bank or any insured depository institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. §1818(e)(7)(A), without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. §1818(e)(7)(D).
   2. David D. McCune and Dana E. Payne shall not solicit, procure, transfer, attempt to transfer, vote, or attempt to vote any proxy, consent, or authorization with respect to any voting rights in the Bank or any insured depository institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. §1818(e)(7)(A), without prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. §1818(e)(7)(D).
   3. David D. McCune and Dana E. Payne shall not violate any voting agreement with respect to any insured depository institution, agency, or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. §1818(e)(7)(A), previously approved by the appropriate Federal financial institutions regulatory agency, without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is defined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. §1818(e)(7)(D).
   4. David D. McCune and Dana E. Payne shall not vote for a director, or serve or act as an institution-affiliated party, as that term is defined in section 3(u) of the FDI Act, 12 U.S.C. §1813(u), of the Bank or any insured depository institution, agency, or organization, enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. §1818(e)(7)(A), without the prior written consent of the FDIC and the appropriate Federal financial institutions regulatory agency, as that term is fined in section 8(e)(7)(D) of the FDI Act, 12 U.S.C. §1818(e)(7)(D).
   This ORDER shall become effective thirty (30) days from the date of its issuance.
   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 FDIC.
   Dated at Washington, D.C., this 16th day of March, 1993.
   By direction of the Board of Directors.

/s/ Hoyle L. Robinson
Executive Secretary

____________________________________________
RECOMMENDED DECISION
ON DEFAULT

In the Matter of
David D. McCune, and
Dana E. Payne,
individually and as institution
affiliated parties of
Community State Bank
Iola, Texas
(Insured State Nonmember Bank)
FDIC 92-206e

ARTHUR L. SHIPE, Administrative Law Judge
   This proceeding was instituted by the Board of Directors of the Federal Deposit Insurance Corporation on August 19, 1992, by issuance of a Notice of Intention to Prohibit the above respondents from further participation in the conduct of the affairs of any federally insured depository, pursuant to Section 8(e) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e).
   The record of the proceeding reflects service of the Notice upon respondent McCune, on September 15, 1992, and upon respondent Payne, on September 21, 1992, by certified United States Mail.
   The record further reflects that neither respondent has filed an Answer in reply to the Notice, nor has either respondent requested a hearing with respect to the matters alleged.
   Accordingly, on October 29, 1992, counsel for the Federal Deposit Insurance Cor- {{5-31-93 p.A-2195}}poration filed a Motion for Entry of an Order on Default, a copy of which was likewise served upon each of the respondents by Certified United States Mail. The delivery records establish receipt of the motion by both respondents McCune and Payne, on November 2, and on November 12, 1992, respectively.
   To date, neither respondent has filed any reply to the Motion for Finding of Default.
   By Order dated November 16, 1992, the respondents were directed to show cause why the motion for default should not be granted, and why the Administrative Law Judge should not issue a Recommended Decision containing the findings and relief sought in the Notice. The Show Cause Order was personally served upon respondent Payne, on December 2, 1992, by certified United States Mail, and upon respondent McCune, on December 22, 1992, by Federal Express Delivery Service. Neither respondent has replied to the Show Cause Order.
   Accordingly, after careful consideration, and for the reasons set forth below, the FDIC Motion for Entry of an Order of Default is GRANTED.
   FDIC Practice 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 contained 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 Directors a Recommended Decision containing the findings and 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.

   Neither respondent has shown any good cause why an Order of Default should not be entered. Accordingly, this failure constitutes the respondents' waiver of the right to appear and contest the allegations set forth in the Notice.
   The Notice evidences the respondents' participation in numerous violations, practices, and breaches, involving personal dishonesty, and willful and continuing disregard for the safety and soundness of the Community State Bank, Iola, Texas.
   The evidence of record further establishes that the Community State Bank has suffered substantial financial loss and other damage, that the interests of the bank's depositors have been prejudiced, and that the respondents have received financial gain and other benefit by reason of their improper actions.
   In my opinion, both respondents have sufficiently demonstrated their unfitness to participate in the conduct of the affairs of any federally insured depository institution, and I therefore recommend that the Board of Directors of the Federal Deposit Insurance Corporation, issue a final order prohibiting the above respondents from further participating in the conduct of the affairs of any insured depository institution, or other agency of organization enumerated in Section 8(e)(7) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(7), without the prior written consent of the FDIC, and without the prior written consent of any other appropriate federal financial institution regulatory agency.
   So Ordered, this 12th day of January, 1993.

/s/ Arthur L. Shipe
Administrative Law Judge
Date: January 12, 1993

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