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{{3-31-94 p.A-2391}}
   [5210] In the Matter of Ronald L. Blunt, Midland Bank, Kansas City, Missouri, Docket No. FDIC-93-24c&b (1-4-94).

   FDIC Board adopts ALJ's recommendation and orders bank and former president to cease and desist from such unsafe practices as adhering to an employment agreement that obligated bank to pay salary even after employee was removed from office, and orders employee to reimburse bank for unearned compensation.

   [.1] Unsafe or Unsound Practices—Unearned Compensation
   Agreement between bank and respondent that provided neither for termination of respondent's employment for cause nor for termination of bank's obligation to pay respondent after he ceased to perform or provide services constituted an unsafe or unsound banking practice.

   [.1] Compensation—Unjust Enrichment—Restitution
   Payment of salary, notwithstanding respondent's removal from banking upon indictment for a felony involving personal dishonesty, constituted unjust enrichment for which respondent must make restitution.

In the Matter of
RONALD L. BLUNT, individually,
and as an institution-affiliated
party of Midland Bank,
Kansas City, Missouri
and
MIDLAND BANK
KANSAS CITY, MISSOURI
(Insured State Nonmember Bank)
DECISION AND ORDER
TO CEASE AND DESIST

FDIC-93-24c&b

INTRODUCTION

   This proceeding was initiated before the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") by a Notice of Charges and of Hearing ("Notice") issued against Ronald L. Blunt, Individually, and as an institution-affiliated party of Midland Bank, Kansas City, Missouri ("Respondent Blunt"), and Midland Bank, Kansas City, Missouri ("Bank"), on February 9, 1993, pursuant to section 8(b)(1) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(b)(1), and Part 308 of the FDIC's Rules and Regulations, 12 C.F.R. Part 308, and a contemporaneous Temporary Order to Cease and Desist ("Temporary Order") and Findings of Fact and Conclusions of Law ("Findings"), issued pursuant to 12 U.S.C. § 1818(c).
   The Notice alleged that the Bank and Respondent Blunt had engaged in specified unsafe or unsound banking practices, and violated portions of the FDI Act which caused the Bank to sustain significant damage, including the depletion of earnings and capital, and cause Respondent Blunt to be unjustly enriched, requiring corrective measures in the form of a cease and desist order.
   The Recommended Decision ("Recommended Decision") issued by Administrative Law Judge Arthur L. Shipe ("ALJ") granted the FDIC's unopposed Motion for Summary Disposition. The ALJ recommended the entry of a Cease-and-Desist Order requiring the Bank and Respondent Blunt to cease and desist from engaging in unsafe or unsound practices and violations of law, and Respondent Blunt to make restitution to the Bank.1
   Following a thorough review of the Recommended Decision and the entire record in this proceeding, the Board adopts the Recommended Decision.


1 References to the record herein are as follows:
Recommended Decision "R.D. at ____." Notice "Notice at ____." FDIC's Motion for Summary Disposition "Motion at ____." FDIC's Brief in Support of Motion for Summary Disposition ____ "Brief in Support of Motion for Summary Disposition at ____." Affidavit of Mark S. Schmidt ____ "Affidavit at ____."
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BACKGROUND

   The Notice and the Temporary Order instituting this proceeding were both issued on February 9, 1993. The Bank and Respondent Blunt filed their Answers which did not deny the facts germane to the allegations contained in the Notice. Neither respondent contested the terms of the Temporary Order. On May 21, 1993, Respondent Blunt stipulated to the entry of a "Stipulation and Consent to the Issuance of an Order of Prohibition From Further Participation" against him.
   On June 28, 1993, the FDIC filed its Motion for Summary Disposition ("Motion") and submitted the affidavit of Mark S. Schmidt, Assistant Regional Director, from the Kansas City Regional Office.2
   On July 16, 1993, Respondent Blunt moved for an automatic stay of proceedings under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. § 701 et seq., which was opposed both by the FDIC and Bank. On July 30, 1993, the ALJ denied the motion for stay of proceedings and entered a Prehearing Order requiring Respondent Blunt to show cause why the FDIC's pending Motion should not be granted. Respondent Blunt did not reply to the Motion. On September 9, 1993, the ALJ granted the Motion finding that there were no disputed issues of material fact,3 and issued his Recommended Decision.

DISCUSSION

   This is a straightforward cease-and-desist proceeding. The critical facts upon which the FDIC issued its Notice are uncontested. Therefore, the FDIC appropriately filed its Motion in the matter. The only issues that remained before the ALJ were the legal issues of (1) whether the Employment Agreement and performance thereunder constitute unsafe or unsound banking practices or a violation of section 30(a) of the FDI Act, 12 U.S.C. § 1831g(a), and (2) whether Respondent Blunt was unjustly enriched. Both of these issues were fully briefed by the FDIC, and its position was uncontested by the Bank and Respondent Blunt.4 Therefore, the Board finds that the ALJ correctly concluded that the record supports the FDIC's allegations.

   [.1, .2] The Board adopts and incorporates herein by reference the ALJ's findings as to material facts not disputed. R.D. at 2–4. The ALJ correctly concluded that the execution of an Employment Agreement by and between Respondent Blunt and the Bank, which did not provide for the Bank's termination of Respondent Blunt's employment for cause and which did not provide for the termination of the Bank's obligation to compensate Respondent Blunt for his failure to perform or provide services, as required by the Employment Agreement, constituted unsafe or unsound banking practices. The ALJ also concluded that performance of the Employment Agreement adversely affected the safety and soundness of the Bank and unjustly enriched Respondent Blunt in that, notwithstanding his indictment for a felony involving personal dishonesty, resignation and leave of absence from his positions with the Bank, and prohibition from participation in the industry, Respondent Blunt continued to draw salary and benefits from the Bank in the amount of $69,459.78 until on or about February 15, 1993.

CONCLUSION

   The Board agrees with the ALJ's findings and conclusions as set forth in his Recommended Decision and incorporates them herein by reference. The Board hereby issues an Order to Cease and Desist to enjoin the Bank and Respondent Blunt from engaging in unsafe or unsound banking practices and violations of applicable law and to require them to take affirmative action to correct the adverse consequences of performing under the Employment Agreement, including the payment of restitution to the Bank by Respondent Blunt.


2 The purpose of the affidavit was to submit an expert opinion before the ALJ, supporting the FDIC's conclusion that the Employment Agreement on its face constitutes an unsafe or unsound banking practice. (FDIC's Brief in Support of its Motion for Summary Disposition at 10–11.) Mr. Schmidt states that the Employment Agreement is contrary to generally accepted standards of prudent bank operation, and that performing under it would adversely affect the safety and soundness of the Bank. (Affidavit at 8–10.)

3 The undisputed facts upon which the ALJ granted the Motion (ALJ's Recommended Decision at pages 2–4), indicate that neither the Bank nor Respondent Blunt contested the material facts which formed the basis for the issuance of the Notice against them.

4 Section 308.23(d)(2) of the FDIC's Rules of Practice and Procedure, 12 C.F.R. § 308.23(d)(2), provides that the failure of a party to oppose a written motion is deemed a consent by that party to the entry of an order substantially in the form of the order accompanying the motion. Moreover, respondents also have failed to file any exceptions to the ALJ's Recommended Decision.
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ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns cease and desist from:
   Paying or providing to Respondent Ronald L. Blunt, directly or indirectly, in any manner whatsoever, any compensation of any kind whatsoever, including but not limited to, any compensation, bonuses, benefits or perquisites under that certain Employment Agreement (collectively "compensation") dated December 31, 1991, by and between Respondent Blunt and the Bank ("Employment Agreement").
   IT IS FURTHER ORDERED, that Respondent Blunt shall cease and desist from:
   Accepting from the Bank, directly or indirectly, any compensation of any kind whatsoever.
   For the purposes of this ORDER, the term "compensation" includes, without limitation, any property, real or personal, tangible or intangible, or the use thereof, or anything else of value in consideration of employment or any employment agreement, written or oral.
   IT IS FURTHER ORDERED, that Respondent Blunt and the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:
   1. Effective the date of this ORDER, the Bank shall rescind the Employment Agreement.

    2. (a) Within 10 days of the effective date of this ORDER, the board of directors of the Bank shall prepare a written analysis and determination of the dollar amount of any compensation, of any kind whatsoever, including, but not limited to, salary, bonuses, benefits, and perquisites paid under the Employment Agreement, directly or indirectly, to Respondent Blunt by the Bank for the period from the date on which Respondent Blunt's leave of absence commenced through the effective date of this ORDER ("unearned compensation").
       (b) A copy of the board of directors' analysis and determination of unearned compensation shall be made a permanent part of the Bank's records and the minutes of the board of directors' meeting at which the analysis and determination was made shall also be immediately sent to the Regional Director of the FDIC's Kansas City Regional Office ("Regional Director"), 2345 Grand Avenue, Suite 1500, Kansas City, Missouri 64108.
       (c) Within 10 days after submitting the written analysis and determination to the Regional Director, the Bank's board of directors shall make written demand on Respondent Blunt for reimbursement of all unearned compensation, plus interest, calculated at a rate of 2 percent over the Wall Street Journal prime rate (as published from time to time), accruing from the date that any amount included in the unearned compensation was first paid to Respondent Blunt to the date of reimbursement.
    3. (a) Within 10 days of receipt of the demand made pursuant to paragraph 2, Respondent Blunt shall immediately make restitution or provide reimbursement to the Bank for the unearned compensation, plus interest, as determined pursuant to paragraph 2 of this ORDER.
       (b) Such restitution or reimbursement:
         (i) shall be made or provided from Respondent Blunt's personal assets; and
         (ii) shall not be paid or funded in any manner whatsoever from or by the use of the Bank's assets, including, without limitation, by means of any extension of credit from the Bank.
       (c) For purposes of this ORDER, the phrase "extension of credit" shall have the same meaning as set forth in 12 C.F.R. § 215.3.
   4. The Bank shall immediately notify the Regional Director in writing of its receipt of restitution or reimbursement from Respondent Blunt. If Respondent Blunt does not make all and complete payment to the Bank of the unearned compensation plus interest, as determined pursuant to paragraph 2 of this ORDER, the Bank shall immediately notify the Regional Director in writing of Respondent Blunt's failure to pay.
   5. No more than 60 days from the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 17th Street, NW, Washington,
{{3-31-94 p.A-2394}} D.C. 20429, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.
   6. This ORDER shall become effective 10 days from the date of its issuance.
   The provisions of this ORDER shall be binding upon Respondent Blunt, the Bank and its institution-affiliated parties, successors and assigns.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 4th day of January, 1994.
   \s\ Robert E. Feldman
   Deputy Executive Secretary

___________________________________________

RECOMMENDED DECISION

In the Matter of
Ronald L. Blunt,
individually, and as an
institution-affiliated party of
Midland Bank,
Kansas City, Missouri
and
Midland Bank
Kansas City, Missouri
(Insured State Nonmember Bank)
FDIC 93-24c&b
Arthur L. Shipe, Administrative Law Judge:

   On Motion for Summary Disposition
   This cease and desist action arises from a Notice of Charges and of Hearing, issued pursuant to Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(b)), as well as a Temporary Order to Cease and Desist, issued pursuant to Section 8(c) of the Act (12 U.S.C. § 1818(c)). Both the Notice and Temporary Order were issued on February 9, 1993, and were served upon the above respondents on February 17, 1993.
   After approved extensions of time, counsel for each of the above respondents filed an Answer in response to the Notice, both admitting and denying certain of the allegations set forth therein. The terms of the Temporary Order, however, were not contested.
   On June 25, 1993, counsel for the Federal Deposit Insurance Corporation filed a Motion for Summary Disposition, contending that no genuine issue of any material fact exists, such that an Order to cease and desist may be issued as a matter of law. In response to the FDIC motion for Summary Disposition, counsel for Respondent Blunt moved on July 15, 1993, for automatic stay of the instant proceeding, as a result of that Respondent's petition for relief under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. § 701 et seq.
   On July 30, 1993, Respondent Blunt's motion for stay of this proceeding was denied. To afford the Respondent additional opportunity to reply to the pending FDIC motion, the Respondent was directed to show cause on or before August 13, 1993, why the Motion for Summary Disposition should not be granted. To date there has been no reply to the outstanding motion.1
   The following material facts are not disputed:
   1. The FDIC has jurisdiction over the parties and the subject matter of this proceeding.
   2. Respondent Blunt was employed by Respondent Midland Bank, pursuant to an Employment Agreement executed by and between the two respondents on December 31, 1991.
   3. Under the terms of the Employment Agreement referenced above, Respondent Blunt was to serve as president and chief executive officer of the Bank and as a member of the Bank's board of directors, and did so serve until November 5, 1992, when Respondent Blunt was indicted for a felony involving personal dishonesty.
   4. On the date of the indictment, November 5, 1992, Respondent Blunt resigned as a member of the bank's board of directors, and took a "leave of absence" from his positions as president and chief executive officer.
   5. By reason of the above indictment, the FDIC issued on January 5, 1993, a Notice and Order of Suspension and Prohibition under Section 8(g) of the Federal Deposit Insurance Act, prohibiting Respondent Blunt


1 The record reflects that Respondent Midland Bank interposes no objection to the summary disposition of the proceeding.
{{4-30-94 p.A-2395}}from further participation in the conduct of the affairs of the Bank.
   6. After the above indictment, resignation, and leave of absence, Respondent Blunt continued to receive his annual salary from the Bank pursuant to the terms of the Employment Agreement. The Respondent drew salary and benefits in the amount of $69,459.78 until on or about February 15, 1993, notwithstanding that an intervening Order of Prohibition was issued on January 5, 1993.
   7. The unrebutted affidavit of the FDIC expert establishes that:
       (a) The execution of the Employment Agreement by and between the Bank and Respondent Blunt, and the subsequent salary payments made pursuant thereto after November 5, 1992, constituted unsafe and unsound banking practices.
       b. The performance of the Employment Agreement did and would adversely affect the safety and soundness of the Bank.
       c. The Midland Bank should not have paid, and Respondent Blunt should not have accepted compensation when no services were being provided to the bank.
       Respondent Blunt, by his receipt of compensation under such circumstances from November 5, 1992, until on or about February 15, 1993, was unjustly enriched.
   The above facts are not disputed by either Respondent, and establish as a matter of law a prima facie case for the issuance of a Cease and Desist Order. FDIC Practice Rule 308.23(d)(2) provides that the failure of a party to oppose a written motion is deemed a consent by that party to the entry of an order substantially in the form proposed.
   Accordingly, with the apparent consent of both Respondents, the FDIC Motion for Summary Disposition is GRANTED. I recommend that the FDIC Board of Directors summarily issue the proposed Cease and Desist Order accompanying this decision, as there are no disputed issues of material fact, as the only issues to be resolved are legal rather than factual, such that no evidentiary hearing is required.
   So Ordered, this 9th day of September, 1993.
   /s/ Arthur L. Shipe
   Administrative Law Judge
   Date: September 9, 1993

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