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FDIC Enforcement Decisions and Orders

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   [8007A] In the Matter of Southwestern Bank & Trust Company, Oklahoma City, Oklahoma, Docket No. FDIC-89-24a (6-5-90)).

   Board grants FDIC enforcement counsel special permission to appeal an ALJ order compelling production of documents, and stays the ALJ proceedings pending resolution of the interlocutory appeal.

   [.1] Practice and Procedure—Interlocutory Appeals—Special Permission
   Board has discretionary authority to grant interlocutory appeals when it finds an issue of first impression and potentially broad impact.
   [.2] Practice and Procedure—Interlocutory Appeals—Standards
   Issues of first impression concerning relevance of discovery, and an ALJ order involving potentially burdensome discovery, satisfy the test for granting an appeal.
   [.3] Practice and Procedure—Interlocutory Appeals—Stay of ALJ Proceedings
   Stay of proceedings before an ALJ is warranted when moving party demonstrates likelihood of success on the merits and substantial hardship if stay is denied.

In the Matter of

SOUTHWESTERN BANK & TRUST
COMPANY

OKLAHOMA CITY,OKLAHOMA
(Insured State Nonmember Bank)
DECISION AND ORDER

   This case is presently before the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") on the Motion of the FDIC's Enforcement Counsel for Special Permission to Appeal the Adminis-
{{9-30-91 p.I-24}}trative Law Judge's Order Compelling Production of Documents ("Motion"). The Administrative Law Judge's ("ALJ") Decision and Order ("Order") was issued on May 14, 1990 and received by Enforcement Counsel on May 21, 1990. The FDIC's Office of the Executive Secretary received the Motion on May 31, 1990. The Motion is therefore timely filed pursuant to 12 C.F.R. § 308.31(b)(1). Respondent's response to the Motion has not yet been received by the Office of the Executive Secretary and that response is not due under the FDIC Rules and Regulations until June 10, 1990. 12 C.F.R. § 308.31(b)(2). However, the Order requires production within 15 days of receipt of the Order, in this case on June 5, 1990.
   On the basis of the record currently available, the Board is of the opinion that the Motion for Permission to Appeal should be granted. In addition, the time constraints require that the Board grant a stay of the ALJ's Order pending resolution of this appeal.

BACKGROUND

   On October 12, 1989, the FDIC issued a Notice of Intention to Terminate Insured Status, Findings or Unsafe or Unsound Practices and/or Condition, and Order Setting Hearing ("Notice") to Southwestern Bank & Trust Company, Oklahoma City, Oklahoma ("SWB" or "Respondent"), pursuant to 12 U.S.C. § 1818(a). The Notice alleged that SWB "has engaged or is engaging in unsafe or unsound practices in conducting the business of the Insured Institution and/or is in an unsafe or unsound condition to continue operations as an insured depository institution, and...the insurance risk of the FDIC is unduly jeopardized..." The matter was assigned to ALJ James L. Rose for hearing.
   On November 20, 1989, SWB requested by letter that Enforcement Counsel produce certain documents including:

    Copies of any document relating to costs of liquidation of banks in the Southwest region including but not limited to: (a) any documents showing comparisons of liquidation in open versus closed bank scenarios; (b) any documents showing average costs of liquidation as a percentage of assets; (c) any documents containing analyses, summaries, or studies of any of the above.
   On December 8, 1990, Enforcement Counsel responded to the request by letter objecting to production of the documents specified on the grounds of relevancy and that the information would not lead to discovery of relevant evidence. Enforcement Counsel contended that the documents were not relevant because they had no bearing on the issue of "unsafe or unsound practices" addressed in the Notice. SWB applied for an order compelling production on April 13, 1990, and on May 3, 1990, Enforcement Counsel filed its response again arguing that the documents sought were not relevant. On May 14, 1990, the ALJ entered an Order compelling production because he found that the documents were relevant to an affirmative defense proposed by SWB, and that the cost to the insurance fund of terminating SWB's insured status might be greater than the risk SWB poses to the fund. The Order requires that the documents be provided within 15 days of receipt of the Order. The Motion of Enforcement Counsel presently before the Board was filed within 10 days of receipt of the ALJ's Order.

DISCUSSION

   This Motion comes before the Board complicated by conflicting time limitations. On the one hand, production pursuant to the ALJ's Order must take place on or before June 5, 1990. On the other hand, the Board has before it only the Motion of Enforcement counsel and Respondent has until June 10, 1990, to file a response. Based on the pleadings before the Board, the Board grants the Motion and stays the ALJ's Order of May 14, 1990 pending a decision on the merits of the appeal.

   [.1,.2] The Board's criteria for accepting interlocutory appeals are set forth in section 308.31(a)(2) of the FDIC Rules and Regulations, 12 C.F.R. § 308.31(a)(2). As set forth in the Rules and Regulations, generally, the appeal must involve "an important, unresolved issue of general application that should be immediately decided by the Board," or must involve "clear error below" and the "rights of a party are likely to be severely prejudiced if the matter is not immediately decided by the Board." This case meets at least the first test. The issue in this case is whether in a section 8(a) termination of insurance proceeding, a respondent may discover documents of the FDIC which relate to the costs associated with liquidation of unrelated banks in the Southwest. Enforcement Counsel opposes this re- {{9-30-91 p.I-25}}quest on grounds of relevance. The relevance of this type of discovery is one of first impression and could potentially impact a large number of cases involving terminations of insurance under section 8(a). Since the issue is one of potentially broad impact and involves potentially burdensome discovery, the Board concludes that this Motion satisfies the test for granting a Motion for Special Permission to Appeal.

   [.3] The Board's criteria for granting stays pending resolution of interlocutory appeals is governed by 12 C.F.R. § 308.31(c):

    Interlocutory appeals under this section do not stay administrative proceedings before the administrative law judge. The Board, or the administrative law judge may, however, order a stay upon a finding that the party aggrieved by the appealed ruling or order has shown a substantial likelihood of success before the Board on the merits of the interlocutory appeal and that substantial hardship or injustice is likely to result if a stay is not granted, provided that only the Board may grant any stays or series of stays exceeding a total of thirty days.
Essentially, this provision allows stays to be granted if the moving party has shown a substantial likelihood of success on the merits and substantial hardship.
   In this case, a stay is warranted. The Board finds that Enforcement Counsel has demonstrated a substantial likelihood of success on the merits. Although, in proceedings before the FDIC, fair and reasonable discovery of relevant documents is permissible, 12 C.F.R. § 308.25(b), it does not appear to the Board that the document discovery requested by Respondent will produce evidence relevant to the allegations of unsafe or unsound practices or condition or violations of law, regulations or orders. Nor does the Board see, at this juncture, how the requested documents could lead to the discovery of other relevant evidence. In addition, in the absence of a stay, Enforcement Counsel is faced with a dilemma of whether to comply with the ALJ's Order (thereby making the appeal moot) or not complying with the Order (and facing the potential consequences of such disobedience). It also appears that the sheer volume of production requested is overly burdensome and is likely to create a substantial hardship on Enforcement Counsel. Finally, a stay will provide time for Respondent to file a response to the present motion and give the Board an opportunity to consider any arguments as to why such documents are relevant. Accordingly, the Board concludes that a stay of the compliance date should be granted.

ORDER GRANTING SPECIAL APPEAL AND STAY

   The Board of Directors of the FDIC, having considered Enforcement Counsel's Motion for Special Permission to Appeal and supporting documentation and the ALJ's Order dated May 14, 1990, makes the following findings. The Board finds on the record before it that Enforcement Counsel's Motion raises an important unresolved issue of general application that should be immediately decided by the Board. The Board also finds that Enforcement Counsel has shown a substantial likelihood of success before the Board on the merits of the appeal and that substantial hardship is likely to result if a stay is not granted.
   ACCORDINGLY, IT IS HEREBY ORDERED, that for the reasons set forth in the Board's Decision and Order, Enforcement Counsel's Motion for Special Permission to Appeal, is GRANTED.
   IT IS FURTHER ORDERED, that a stay of compliance with the ALJ's Order pending a decision on the appeal is also GRANTED.
   IT IS FURTHER ORDERED, that Respondent shall file its response to Enforcement Counsel's Motion on or before June 15, 1990, and that Enforcement Counsel shall file a reply, if any, on or before June 22, 1990.
   IT IS FURTHER ORDERED, that the Executive Secretary, or his designee, shall serve a copy of this Decision and Order on all parties and the Administrative Law Judge by overnight courier or express mail, and that each party shall serve all pleadings relating to this appeal by personal service, by overnight courier, or by express mail.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 5th day of June, 1990.
   /s/ Hoyle L. Robinson
   Executive Secretary

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In the Matter of

SOUTHWESTERN BANK AND
TRUST COMPANY

OKLAHOMA CITY,OKLAHOMA
(Insured State Nonmember Bank)

DECISION AND ORDER
OF ADMINISTRATIVE LAW JUDGE

   The Southwestern Bank and Trust Company, Oklahoma City, Oklahoma (Bank), pursuant to 12 C.F.R. § 308.27(f), has moved for an order compelling the FDIC to produce certain documents requested in connection with discovery in this matter. The FDIC has filed a response in opposition to the motion to compel. I conclude that the FDIC must disclose the requested documents.
   By letter dated November 20, 1989, counsel for the Bank requested, inter alia,

    Copies of any document relating to costs of liquidation of banks in the Southwest Region, including but not limited to: (a) any documents showing comparisons of costs of liquidation in open versus closed bank scenarios; (b) any documents showing average costs of liquidations as a percentage of assets; (c) any documents containing analyses, summaries or studies of any of the above.
   The Bank contends that these documents relate directly to one of the Bank's affirmative defenses, i.e., that the FDIC's costs in terminating the Bank's insured status and placing the Bank into receivership or liquidation would be far greater than the alleged risk the Bank poses to the insurance fund.
   The FDIC contends that the requested documents are irrelevant and immaterial to the issues in the case, and, if admitted, would only serve to buttress the proposed termination.
   I conclude that the requested documents relate to one of the Bank's affirmative defenses and may provide information pertinent to the resolution of the issues in this case.
   Therefore, it is hereby ORDERED that, the Bank's motion to compel disclosure of the above-specified documents is granted. The FDIC shall disclose the documents requested by the Bank no later than 15 days from the date of receipt of this Order.
   So ordered this 19th day of May, 1990.
   /s/ James L. Rose
   Administrative Law Judge

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