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FDIC Enforcement Decisions and Orders

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   [8034] In the Matter of James E. Abbott, et al., Community First State Bank (Formerly the Abbott Bank), Alliance, Nebraska, Docket No. FDIC-94-167e and FDIC-95-187k (5-27-97)

   FDIC Board rules that the request for interlocutory review of the ALJ's grant of one respondent's motion for severance met the statutory criteria, but the request for severance failed to meet the regulatory requirements. Respondent's charges are consolidated with all other respondents.(This order was terminated by order of the FDIC dated 5-27-99; see ¶16,221, ¶16,222, ¶16,223, ¶16,224.)

   [.1] Interlocutory Review—Standards—Ruling may advance Ultimate termination and Subsequent Modification Inadequate Remedy
   Board grants interlocutory review of ALJ decisions upon finding that immediate review of the ruling may materially advance the ultimate determination and a subsequent modification of the severance ruling at the conclusion of the proceedings would be an inadequate remedy, meeting two of the criteria set forth in section 308.28(b) of the FDIC Rules of Practice and Procedure.
   [.2] Severance—Prejudice or Injustice
   There are two requirements preceding the grant of a motion for severance, including a finding of undue prejudice without severance. The delay alone, resulting because of the postponement granted at the request of the other respondents, does not create prejudice or injustice sufficient to justify severance.
   [.3] Severance—Prejudice outweighing Judicial Economy
   To grant a motion for severance, and injustice resulting from not severing must outweigh the interests of judicial economy and expeditiousness. Respondent's charges are not easily segregated and he shares facts and issues with multiple respondents, mandating duplication of effort if severance was granted so any inconvenience does not outweigh judicial economy.

In the Matter of
JAMES E. ABBOTT;
RICHARD L. GORDON;
MORRIS R. SHIELDS;
JOHN H. WESTERING;
ALAN W. FRIESEN;
BRUCE A HOCKING;
GLENN P. OORLOG; and
RITCH A. BAHE
COMMUNITY FIRST STATE BANK
(Formerly The Abbott Bank)
ALLIANCE, NEBRASKA
Insured State Nonmember Bank
Decision and Order Granting
Request for Interlocutory Review

Of Motion For Severance
FDIC-94-167e
FDIC-95-187k

BACKGROUND

   This matter is before the Board of Directors (the "Board") of the Federal Deposit Insurance Corporation ("FDIC") upon the Motion and Request for Interlocutory Review filed by FDIC Enforcement Counsel. The Request arises out of a prehearing Order On Motion to Postpone Hearing ("Order"), issued by Administrative Law Judge Arthur L. Shipe (the "ALJ") on April 21, 1997, which granted John H. Westering's ("Respondent Westering") Motion for Severance and required the hearing on this matter to go forward on June 2, 1997, with respect to only Respondent Westering.1

INTERLOCUTORY REVIEW

   Section 308.28(b) of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.28(b) states that interlocutory review of a ruling of an administrative law judge may be granted if the Board finds that:
   (1) The ruling involves a controlling question of law or policy as to which substantial grounds exist for a difference of opinion;


1FDIC Enforcement Counsel sought and obtained the concurrence of all respondents except Respondent Westering for a postponement of the hearing date. The ALJ approved postponing the date with respect to all concurring parties and that issue is not before the Board. Respondent Westering objected to the postponement and sought severance of his case should postponement be granted. The ALJ's Order severing one of eight Respondents is the subject of the request for interlocutory review.
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   (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 would cause unusual delay or expense.

   [.1] The Board concurs with FDIC Enforcement Counsel that interlocutory review is appropriate because immediate review of the ruling may materially advance the ultimate termination of the proceeding and because subsequent modification of the ALJ's Order at the conclusion of the proceeding would be an inadequate remedy. Modification at the point will not recoup the duplication of effort and expense to the FDIC, its employees and its non-employee witnesses which results from having to conduct two separate hearings in this matter, and would appear to waste the time of the ALJ as well. Accordingly, the Request for Interlocutory Review is hereby GRANTED.

DISCUSSION

   A motion for severance may be granted where the ALJ finds that:
   (1) undue prejudice or injustice will result to the moving party from not severing the proceeding, and
   (2) such undue prejudice or injustice would outweigh the interests of judicial economy and expedition in the complete and final resolution of the proceeding. 12 C.F.R. § 308.22(b). (Emphasis added.)
   Respondent Westering claims that any further delay in this matter would be prejudicial to him and asserts a fundamental right to address the charges against him at an early opportunity. The ALJ finds that, notwithstanding Respondent Westering's previous acquiescence to delay, his present objections to further delay and his desire to "expeditiously resolve this matter as to him" are sufficient "injustice" to warrant severance.2 The ALJ further states that the allegations against Respondent Westering are "discrete from those against the other Respondents" and "would constitute a separate segment of the consolidated proceeding, although some of the same witnesses may testify on the Westering allegations as on other matters." He concludes that "undue prejudice and injustice to Respondent Westering outweighs any interests of judicial economy served by continuing the consolidated proceeding..." Order at 3.
   FDIC Enforcement Counsel and the other respondents seek a continuance in this matter (1) because there are multiple outstanding discovery obligations, including production owed by Respondent Westering;3 and (2) because more time is needed to adequately prepare for the hearing.
   FDIC Enforcement Counsel assert that Respondent Westering has made no claim of actual harm or prejudice which will result from a continuance. Nor has he claimed that he cannot receive a fair hearing at a later date. Further, FDIC Enforcement Counsel claim that Respondent Westering has made only a vague and general statement about his right to a timely hearing. According to FDIC Enforcement Counsel, he has failed to meet the first prong of the regulatory requirement. In addition, FDIC Enforcement Counsel state that severance "would result in significant duplication of efforts, e.g., trying the same facts and requiring the same testimony from the same witnesses in two separate hearings." Moreover, FDIC Enforcement Counsel argue that they require additional time to prepare the case against all respondents, including Respondent Westering.
   The Board finds that Respondent Westering does not meet either prong of the regulatory requirement for severance and, therefore, overturns the ALJ's Order.

   [.2] There is no argument that this is anything but a complex case, involving eight


2The case is currently scheduled for six weeks of hearing, divided into two three-week segments, June 2-20, 1997 and July 28-August 15, 1997. FDIC Enforcement Counsel and the remaining respondents requested a postponement of three months until approximately September 1997. In making such request, they indicated that should the ALJ's schedule not permit him to hold the hearing at that time, consideration should be given to transferring the matter to the docket of another ALJ. The ALJ's Order indicates that he cannot reschedule this case until early 1998, but contains no discussion of the option of transfer.

3Respondent Westering claims that he owes only a financial statement, which he would produce to FDIC Enforcement Counsel on May 2, 1997. FDIC Enforcement Counsel point out that such disclosure is six months late and claim that work papers from Arthur Anderson also remain outstanding. They further state that copying of documents recently requested by Respondent Westering is still in process, and that Respondent Westering has not submitted any response to FDIC Enforcement Counsel's supplemental requests for documents served on January 15, 1997.
{{8-31-98 p.I-117}}respondents in numerous transactions over a seven year period. FDIC Enforcement Counsel and the remaining respondents have requested a three month postponement of the hearing. Given the agreement of all parties, including Respondent Westering, to multiple previous continuances, absent other unspecified facts, such a delay alone does not rise to the level of prejudice or injustice. The fact that the ALJ cannot schedule the hearing on his docket at the time requested also does not make the requested delay prejudicial or unjust. Although the record before the Board does not resolve the issue of whether the case may be heard more expeditiously by another ALJ, absent some evidence to the contrary, the Board must assume that the possibility remains. In light of the consolidation to which no respondent has heretofore objected, it is neither unreasonable nor unforeseeable that the administrative process would be subject to delays requested by one or more parties.

   [.3] The Board has reviewed the Notice of Assessment of Civil Money Penalties, Findings of Facts and Conclusions of Law, Order to Pay, and Notice of Hearing and disagrees with the ALJ's conclusion that the charges related to Respondent Westering will constitute a discrete segment of the hearing which is readily segregable. That conclusion is totally inconsistent with the ALJ's original decision to consolidate these cases. While Respondent Westering is alleged to have engaged in specific transactions, other respondents also are alleged to have participated in these same transactions, as well as other transactions. Multiple common facts and issues of law bind Respondent Westering and at least three other respondents. Thus, the duplication of effort that would be caused by severance is more complicated than merely requiring witnesses to testify twice.
   While the Board appreciates Respondent Westering's desire to resolve the charges against him, where no actual prejudice or injustice has been shown, and where the staffing and other costs of trying these connected issues twice are substantial, the Board strikes the balance here on the side of judicial economy and efficiency.
   Finally, because there is evidence that all parties, including Respondent Westering, have outstanding discovery obligations, and because the ALJ, by his grant of the continuance with respect to all other respondents, has established the need for such continuance, the Board affirms that grant of the continuance to all respondents, and extends it to include Respondent Westering.
   Accordingly, it is hereby ORDERED that:
   1. Order On Motion to Postpone Hearing is REVERSED;
   2. The Motion for Severance of Respondent John H. Westering is DENIED;
   3. The Motion for Continuance filed by FDIC Enforcement Counsel is GRANTED with respect to all respondents in this case.
   4. The parties and the ALJ shall set a hearing commencement date in early September 1997, or as soon thereafter as is practical, giving due consideration to transferring this case to another administrative law judge's docket, if necessary.
   5. In light of this ruling, the ALJ shall reconsider, if necessary, the extension of the Prehearing Order Requiring Submission of Prehearing Statements by May 2, 1997.
   By Direction of the Board of Directors.
   Dated at Washington, D.C., this 27th day of May, 1997.

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