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FDIC Enforcement Decisions and Orders

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   [8008] In the Matter of Paul C. Hufnagle and Franklin State Bank, Franklin, Minnesota, Docket No. FDIC-90-104b (11-29-90).

   Board denies FDIC Enforcement Counsel's application for special permission to appeal. Issue of confidentiality of a Report of Apparent Crime is not ripe for review until ALJ issues an order requiring its release.

   [.1] Practice and Procedure—Interlocutory Appeals—Ripeness
   For Board to grant special permission to appeal, a party must demonstrate clear error below and the likelihood that his rights would be severely prejudiced if the Board does not immediately decide the matter. Until release of a Report of Apparent Crime is ordered by ALJ, the threat to confidentiality of the report is not ripe for review.
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In the Matter of
PAUL C. HUFNAGLE,
individually and as an
institution-affiliated party of
FRANKLIN STATE BANK,
FRANKLIN,MINNESOTA
AND
FRANKLIN STATE BANK
FRANKLIN, MINNESOTA
(Insured State Nonmember Bank)
DECISION AND ORDER
DENYING APPLICATION
FOR SPECIAL PERMISSION
TO APPEAL

   This petition for special permission to appeal an interlocutory order issued by Administrative Law Judge Steven M. Charno ("ALJ") arises in a proceeding brought under section 8(b) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(b), and prosecuted by the Kansas City Regional Office. Federal Deposit Insurance Corporation ("FDIC") Enforcement Counsel seek to appeal the ALJ's discovery ruling on a Report of Apparent Crime ("Report") submitted by the FDIC to the Department of Justice on March 19, 1990.1

The Board of Directors ("Board") of the FDIC notes that Paul C. Hufnagle and Franklin State Bank, Franklin, Minnesota ("Respondents") have filed a timely brief in opposition to Enforcement Counsel's request for special permission to appeal.
   For the reasons set forth herein, the Board denies Enforcement Counsel's request for special permission to appeal.

FACTS

   This proceeding was initiated through the filing of a Notice of Charges and Hearing ("Notice") on June 27, 1990 pursuant to section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b). The Notice contains allegations that Respondents had engaged in certain unsafe or unsound banking practices and violations of regulations and law. The FDIC's Kansas City Regional Office seeks an order requiring Respondents to cease-and-desist from specified practices and regulatory violations and to correct conditions resulting from those practices and violations. The Notice contains no allegations of criminal activity on the part of Respondents.
   Respondent Bank's discovery request sought the release of, inter alia, "[a]ll documents which discuss, or make reference to, Franklin or any of its officers or employees...." After asserting their objections to the request, Enforcement Counsel released certain non-privileged documents and submitted a list of the privileged documents. One of the privileged documents is the Report submitted to the Department of Justice as to which the law enforcement evidentiary and government deliberative process privileges and lack of relevancy were asserted.
   During the pre-hearing conference, Enforcement Counsel were required to produce the list of privileged documents for the ALJ's review. The ALJ did not rule on the privileges asserted as to the Report, but sustained the FDIC's relevancy objection. The ALJ also ordered that the Report be made available for possible disclosure if any evidence related to the facts reflected in the Report are introduced at the hearing scheduled for February 12, 1991. In response to an inquiry from Respondent Paul C. Hufnagle, the ALJ stated:

    You are not going to find out what it is unless they allege that you did it, in which case they are going to have to tell you what it is and show you the report. But as long as they are willing to completely ignore whatever that horrible crime was, then they probably agree that you didn't do it, they are going to have to tell you about it and show you what it constitutes.
(Tr. at 70–71).

DISCUSSION

   [.1] Under FDIC regulations at 12 C.F.R. § 308.42, rulings or orders by an ALJ may not be appealed prior to submission to the Board of the record of the case unless the Board grants special permission pursuant to 12 C.F.R. § 308.31(a)(1). In support of a request for special permission to appeal, a party must demonstrate that at least one of two circumstances exist warranting prompt intervention:
   (i) the interlocutory appeal involves an important, unresolved issue of general application that should be immediately decided by the Board or
   (ii) the interlocutory appeal involves


1 A Report of Apparent Crime is a confidential document submitted by the FDIC to the Department of Justice to indicate the existence of facts or conduct which the agency believes could involve violations of criminal laws.
{{9-30-91 p.I-31}}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.
   12 C.F.R. § 308.31(a)(2).
   The ALJ has not issued an order requiring that Enforcement Counsel release the Report. Thus, the threat to the confidentiality of the Report is not yet ripe for review. Therefore, a special appeal at this time is premature and may ultimately prove to be unnecessary.2
   In view of the above, the Board declines to grant the request for a special appeal or consider the merits of the arguments made by Enforcement Counsel or Respondents on this discovery issue at this time. However, should the release of the Report of Apparent Crime become an issue at the hearing, the matter will then be ripe for review prior to any such release and the Board will entertain a renewed motion for a special appeal.3

ORDER

   After considering the application of FDIC Enforcement Counsel and the briefs submitted by the parties,
   IT IS HEREBY ORDERED, that the request by Enforcement Counsel for special permission to appeal is DENIED.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 29th day of November, 1990.

/s/ Robert E. Feldman
   Deputy Executive Secretary


2 This Board fails to understand how the Report could be relevant to the issues in this proceeding. The information contained in such a report is not probative evidence that a crime has been committed, laws violated, or even of the facts alleged in the report.


3 The Board has consistently taken the position in third party subpoena and discovery responses that such Reports are subject to the law enforcement privilege and should not be disclosed absent some extraordinary circumstance.

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