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FDIC Enforcement Decisions and Orders

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   [8032] In the Matter of Larry J. Whitehead, Doris D. Palmer, Mary H. Ray, and Louis W. Fortenberry, The Bank of Walnut, Walnut, Miss., Docket Nos. 94-39e and 94-40k (2-10-95)

   FDIC declines to grant respondents' request for interlocutory review of administrative law judge's ruling that the five-year statute of limitations in 28 U.S.C. Section 2462 does not apply to removal and prohibition proceeding or civil money penalty proceeding under the Federal Deposit Insurance Act. Respondents have failed to satisfy any of the criteria for interlocutory review pursuant to Rule 28 of the Uniform Rules of Practice and Procedure.

   [.1] Practice and Procedure—Interlocutory Review—Standards
   Under Rule 28 of the Uniform Rules of Practice and Procedure, the board may grant interlocutory review of an administrative law judge's ruling if (1) the ruling involves a controlling question of law or policy as to which substantial grounds exist for a difference of opinion; (2) immediate review of the ruling may materially advance the ultimate termination of the proceeding; (3) subsequent modification of the ruling at the conclusion of the proceeding would be an inadequate remedy; or (4) subsequent modification of the ruling at the conclusion of the proceeding would cause unusual delay or expense.

In the Matter of
LARRY J. WHITEHEAD,

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individually and as an institution-affiliated party of
LARRY J. WHITEHEAD,
DORIS D. PALMER,
MARY H. RAY,
LOUIS W. FORTENBERRY,
individually and as an
institution-affiliated parties of
THE BANK OF WALNUT
WALNUT, MISSISSIPPI
(Insured State Nonmember Bank)
DECISION AND ORDER
ON REQUEST FOR
INTERLOCUTORY REVIEW

FDIC-94-39e
FDIC-94-40k

I. INTRODUCTION

   This matter is before the Acting Executive Secretary of the Federal Deposit Insurance Corporation ("FDIC"), acting pursuant to authority delegated by the Board of Directors of the FDIC ("Board") and with the advice and recommendation of the General Counsel, upon a Request for Interlocutory Review filed by Larry J. Whitehead, Doris D. Palmer, Mary H. Ray, and Louis W. Fortenberry ("Respondents").
   This is a Removal and Prohibition proceeding pursuant to section 8(e) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(e), consolidated with a Civil Money Penalty proceeding pursuant to sections 18(j)(4)1 and 8(i) of the FDI Act, 12 U.S.C. §§1828(j)(4) and 1818(i). The proceeding was initiated by the May 16, 1994, Notice of Intention to Remove from Office and to Prohibit from Further Participation ("Removal Notice") against Larry J. Whitehead, president and chairman of the board of The Bank of Walnut, Walnut, Mississippi ("Bank"), and the May 16, 1994, Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Assessment Notice") against Respondents individually, and as directors and institution-affiliated parties of the Bank.
   Respondents have filed a request for interlocutory review ("Request") from the Prehearing Order on Motion to Strike dated September 1, 1994 ("Prehearing Order"), of Administrative Law Judge Arthur L. Shipe ("ALJ") denying Respondents' motion to strike certain allegations contained in the Assessment Notice and the Removal Notice.
   The Removal Notice contains the following allegations which are relevant to the Request: Respondent Whitehead became a director and principal shareholder of the Bank in early 1984, and was elected president and chairman of the Bank's board of directors in 1988; that during this entire period and continuing to the date of the Removal Notice, the Bank has been repeatedly criticized by the FDIC for activities which include unsafe or unsound practices and/or violations of law involving the Bank's concentration of credit in out-of-territory loans, insider transactions, investment/trading activities, violations of loan policy, inadequate loan documentation, accounting and recordkeeping practices, and inadequate collection procedures; that despite numerous warnings from the FDIC over the past eight years, including criticisms stemming from the April 12, 1985 Report of Examination, a Memorandum of Understanding ("MOU") dated August 20, 1985, an FDIC Report of Examination of the Bank as of February 27, 1987, and every FDIC Safety and Soundness Report of Examination since Respondent Whitehead became president of the Bank in 1988, Respondent has continued to cause and/or allow the Bank to engage in unsafe or unsound practices and/or violations of laws or regulations. The Assessment Notice also refers to the election of Respondent Whitehead to the Bank's board of directors in 1984, cites FDIC Reports of Examination as far back as April 12, 1985, and alleges that there have been violations cited in eight consecutive safety and soundness examinations.
   Respondents have moved to strike allegations which reference occurrences, or documents dated, prior to May 19, 1989, claiming they are barred by the five year limitation contained in 28 U.S.C. § 2462 ("Section 2462").2 Citing 3M Company v. Browner, 17


1Section 306 of the Federal Deposit Insurance Corporation Improvements Act of 1991 eliminated section 18(j)(4) of the FDI Act effective May 18, 1992. For those violations which occurred prior to May 18, 1992, the assessments are still to be made pursuant to 12 U.S.C. § 1828(j)(4) (1989).

2Section 2462 provides in pertinent part as follows:
Except as otherwise provided by Act of Congress, an action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years (Continued)

{{7-31-95 p.I-109}} F.3d 1453 (D.C. Cir. 1994), reh'g and suggestion for reh'g en banc denied May 9, 1994,3 Respondents argue that Section 2462 bars the allegation in the Removal Notice and the Assessment Notice ("Notices") of any act or occurrence prior to May 19, 1989, and bars the admission into evidence of acts or occurrences prior to May 19, 1989, or documents dated prior to May 19, 1989.
   The Prehearing Order denied Respondents' motion to strike on the ground that Section 2462 does not apply to these proceedings, which are instead governed by section 905 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), codified at section 8(i)(3) of the FDI Act, 12 U.S.C. § 1818(i)(3).4
   Respondents' Request is dated September 14, 1994. FDIC Enforcement Counsel filed a Response to Motion Requesting Interlocutory Review of Prehearing Order on Motion to Strike dated September 29, 1994 ("Response").
   Requests for interlocutory review are governed by Rule 28 of the Uniform Rules of Practice and Procedure, 12 C.F.R. § 308.28. Having carefully reviewed Respondent's Request, the Response, the Prehearing Order, and the balance of the record in this consolidated proceeding, the FDIC concludes that Respondents have failed to satisfy any of the criteria for interlocutory review pursuant to that Rule, and accordingly declines to grant the Request.

II. DISCUSSION

   [1.] Rule 28 provides that the Board may grant interlocutory review of an ALJ ruling if:
   (1) The ruling involves a controlling question of law or policy as to which substantial grounds exist for a difference of opinion;
   (2) Immediate review of the ruling may materially advance the ultimate termination of the proceeding;
   (3) Subsequent modification of the ruling at the conclusion of the proceeding would be an inadequate remedy; or
   (4) Subsequent modification of the ruling at the conclusion of the proceeding would cause unusual delay or expense.
12 C.F.R. § 308.28(b). Respondents contend that their Request meets all four criteria. The Response contends that the Request meets none of the four criteria. The FDIC concludes that none of the four criteria are met by the Request. Each of the criteria is discussed below.

A. Controlling Question of Law or Policy.

   After reviewing the record, the FDIC concludes that the Prehearing Order does not involve a controlling question of law or policy as to which substantial grounds exist for a difference of opinion. The issue whether a statute of limitations bars evidence prior to May 19, 1989, may not be controlling because it affects only a fraction of the allegations set forth in the Notices, and none of the alleged actions predating May 19, 1989, are included as predicate offenses underlying either the removal and prohibition proceeding or the civil money penalty proceeding. Even if all such allegations were stricken from the Notices, the remaining allegations could be sufficient, if proven, to support removal and prohibition, and civil money penalties.5 Hence, assuming that substantial


2 Continuedfrom the date when the claim first accrued, if, within the same period the offender or the property is found within the United States in order that proper service may be made thereon.

3On appeal from an Environmental Protection Agency enforcement proceeding under the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the court held that the five-year statute of limitations in 28 U.S.C. § 2462 generally applies to agency administrative enforcement proceedings, civil money penalty proceedings; and that the period of limitation begins to run from the date the statutory or regulatory violation is committed, rather than from the date the government could have reasonably discovered the violation.

4The precise citation is sections 905(a) and (d) of FIRREA, codified as sections 8(i)(3) and 18(j)(6) of the FDI Act, 12 U.S.C. §§ 1818(i)(3) and 1828(j)(6) ("Section 905"). Section 905(a) provides as follows:
    NOTICE UNDER THIS SECTION AFTER SEPARATION FROM SERVICE - The resignation, termination of employment or participation, or separation of an institution-affiliated party (including a separation caused by the closing of an insured depository institution) shall not affect the jurisdiction and authority of the appropriate Federal banking agency to issue any notice and proceed under this section against any such party, if such notice is served before the end of the 6-year period beginning on the date such party ceased to be such a party with respect to such depository institution....
    Section 905(d) is similar except that the phrase "insured depository institution" is replaced with the phrase "nonmember bank or savings association," and the phrase "appropriate Federal banking agency" is replaced with the phrase "Corporation or the Director of the Office of Thrift Supervision, as appropriate."

5As noted in the Response, the Removal Notice alleges approximately 85 separate violations of law or (Continued)

{{7-31-95 p.I-110}}grounds exist for a difference of opinion on the question addressed in the Prehearing Order, it is not "controlling."
   Moreover, a hearing and a full record on all allegations in the Notices will aid the Board in its ultimate determination of all of the issues involved in this proceeding, including those related to the statute of limitations argument on which Respondents' motion to strike is based.

B. Material Advancement of the Proceeding's Ultimate Termination.

   The FDIC is unable to conclude on this record that review at this time is likely to materially advance the ultimate termination of this proceeding. If interlocutory review were to be granted and the motion to strike were granted, it appears that the hearing may be shortened by at most a few days.

C. Subsequent Modification of the Ruling an Inadequate Remedy.

   Respondents assert that allowing the Prehearing Order to stand "allows an injustice to occur," and that "Respondents will have been needlessly exposed to the mental anguish and emotional strain of trying to recall and reconstruct events that occurred a decade ago."
   In the FDIC's view, requiring the Respondents to recollect events occurring more than five years before the issuance of the Notices does not constitute substantial injury or prejudice. Moreover, whatever prejudice might be suffered can be remedied by subsequent modification of the Prehearing Order. If the Board later determines that any of the events or documents which are part of the record are time barred, the Board will simply disregard them in reaching its decision on the merits. Such a procedure will provide a proper and adequate remedy in the event the ruling in the Prehearing Order is subsequently modified by the Board.

D. Subsequent Modification Would Cause Unusual Delay or Expense.

   Respondents argue that the Prehearing Order "will needlessly increase the time required for the hearing and will inordinately increase the time required for preparation for the hearing," thus creating added expense on the part of both the FDIC and Respondents. The FDIC disagrees. The preMay 19, 1989, allegations will only slightly increase the hearing time required for this case. As the Board held in In the Matter of The Citizens Bank of Clovis, Clovis, New Mexico, Docket No. FDIC-91-406b (May 5, 1992), 2 P-H FDIC Enf. Dec. ¶8016, recognizing the costs of litigation as a relevant concern would completely undermine the exceptional nature of interlocutory review.
   In summary, Respondents' Request for Interlocutory Review fails to satisfy the criteria contained in Rule 28. Moreover, the granting of interlocutory review is always a matter of discretion. In this proceeding, the FDIC has determined that a hearing and record on all allegations in the Notices will aid the Board in its determination of all of the issues involved in this proceeding, including those related to the statute of limitations argument on which Respondents' motion to strike is based. As a matter of discretion, the FDIC concludes that interlocutory review is not appropriate. Accordingly, the Request is denied.

ORDER

   For the reasons set forth above, it is hereby ORDERED that Respondents' Request for Interlocutory Review is DENIED.
   Dated at Washington, D.C., this 10th day of February, 1995.
   Pursuant to delegated authority, upon the advice and recommendation of the General Counsel.
/s/ Robert E. Feldman
Acting Executive Secretary


5 Continued regulations, unsafe or unsound practices or breaches of fiduciary duties by Respondent Whitehead, of which only 5 pre-date May 19, 1989. The Assessment Notice alleges approximately 70 separate violations of law and/or regulations, unsafe and unsound practices, or breaches of fiduciary duties by Respondents, only four of which pre-date May 19, 1989.

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