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FDIC Enforcement Decisions and Orders |
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Board rejects ALJ's recommended decision, denies motions for summary judgment, and remands case to ALJ for a hearing to determine (1) whether transfer of funds, in contemplation of the Bank's insolvency, to law firms for representation of Bank officers and directors constituted unsafe or unsound practices, (2) whether the law firms were institution-affiliated parties, and (3) whether restitution is appropriate. (For subsequent orders in this matter, see ¶
{{4-30-92 p.A-1766.1}}
[.2] Unsafe or Unsound PracticesInsolvencyRelevant Factors
[.3] Institution-Affiliated PartiesOutside Counsel
[.4] Directors and OfficersRestitution
In the Matter of
The Federal Deposit Insurance Corporation ("FDIC"), initiated this action on August 10, 1990, pursuant to sections 8(b) and 8(c) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §§ 1818(b) and (c), by issuing to First Pacific Bank, Beverly Hills, California ("Bank"), and certain individual Respondents, including Janice J. France, Berrien E. Moore, Ada P. Sands, and Leonard S. Sands, a Findings of Fact and Conclusions of Law, a Temporary Order to Cease and Desist, and a Notice of Charges and of Hearing ("Notice").1 The Notice also named four law firms as Respondents: Keck, Mahin & Cate; Ronald D. Jaman, Esq.; Crowley & Cuneo; and Christensen, White, Miller, Fink & Jacobs. The Notice alleged that a total of $180,000 had been transferred from the Bank to the law firms with knowledge that the FDIC considered the Bank to be in an insolvent condition and subject to imminent closure by the California State Banking Department.
The individual Respondents seek summary judgment on the ground that there are no genuine issues of triable fact. They assert that, under In the Matter of Harold A. Hoffman, et. al. and Alaska Continental Bank, 1990 FDIC Enf. Dec. (P-H) ¶5140, aff'd on appeal, Hoffman v. FDIC, 912 F.2d 1172 (9th Cir. 1990) ("Hoffman"), engaging a law firm to challenge the regulators is not an unsafe or unsound practice. Id. at A-1493. Further, they assert that, as a matter of law, neither of the two requirements for restitution set forth in 12 U.S.C. §§ 1818(b)(6)(A)(i) and (ii) are met. Respondent law firms seek summary judgment on the ground that there are no genuine issues of triable fact under Hoffman, since the prepayments of the retainers at issue are proper as a matter of law. Further, Respondent law firms assert that they are not institution-affiliated parties.
With respect to the Respondent law firms, the ALJ's March 19, 1991, Recommended Decision ("R.D."), first determined whether there was any dispute concerning the purpose of the legal fees. Enforcement Counsel admit that the allegedly improper payments to the Respondent law firms on August 6, 1990 in the amounts of $25,000 and $50,000, were retainers for matters relating to the State Department of Banking. R.D. of 3-19-91 at 34. The ALJ found that these law firms were engaged throughout July and August 1990 in representing and defending the Bank, including participation in filing at least one lawsuit against the State Department of Banking on behalf of the Bank immediately after the funds were received. R.D. of 3-19-91 at 4.
A. The Application of Hoffman to the Instant Facts
[.2] A reasonable standard must be utilized to determine whether an unsafe or unsound banking practice has occurred when an insolvent institution expends legal fees prior to closure. Factors relevant to the analysis include, but are not limited to, the size of the retainer in relation to the institution, the existence of a retainer agreement, timing of the expense, and scope of the services actually performed. Analysis of these factors in light of the fiduciary duties attendant to an insolvent institution, as discussed above, must be made to determine whether it was an unsafe or unsound banking practice.
[.3] The record before the Board in the present action contains allegations which suggest that the retainers at issue were utilized, at least in part, for proper purposes. However, the timing of the payments does raise some question as to their propriety. An advance retainer fee which the law firm charges against or draws down as services are performed may be appropriate. Even in this situation, the Board would have expected the bank and the Respondent law firms to have maintained proper records of the services performed and return to the receiver any unused portion of the retainer in the event the bank is closed. On this record, the Board declines to make any determination regarding the propriety of the legal fees at issue since the record does not contain sufficient supporting documentation.17 The Board also declines to determine whether the Respondent law firms are or were institution-affiliated parties of the Bank within the meaning of 12 U.S.C. § 1813(u)(4).18 Under the statute, a finding of institution-affiliated status will be dependent upon the determination of whether the transfers at issue constituted a breach of fiduciary duties or an unsafe or unsound practice.
[.4] Similarly, with regard to the individual Respondents, the determination of the separate issue of whether or not unjust enrichment occurred must follow the finding of whether or not these Respondent former bank officials committed an unsafe or unsound practice. These findings cannot be made on the record before us. Further analysis is needed, given the considerations addressed in this Decision to determine whether the expenditures were proper or whether an unsafe or unsound practice has occured.
In accordance with the Board's analysis and discussion of the Hoffman decision, the Motions for Summary Judgement are denied, and these matters are remanded for a hearing on the merits to determine whether the transfers at issue constituted unsafe or unsound practices, whether the Respondent law firms are institution-affiliated parties, and whether restitution is appropriate in light of the factors and considerations set forth in Hoffman and in this Decision.
The Board, having reviewed the record and the applicable law, hereby orders that the Motions for Summary Judgement are denied and hereby remands these matters to the ALJ for a hearing on the merits.
In the Matter of
By Motion filed February 15, 1991, Respondent Crowley & Cuneo (Respondent Crowley) seeks an Order recommending a grant of summary judgement in its favor. By Notice of Joinder and Incorporation filed February 15, 1991, Respondent Christensen, White, Miller, Fink & Jacobs (Respondent Christensen) also seeks an Order recommending a grant of summary judgment in its favor. The opposition briefs to both motions were filed on February 26, 1991. At a March 4, 1991 hearing on the subject motions, pursuant to my inherent authority to conduct this proceeding and without objection having been made by any party, I granted the joinder of Respondent Christensen. Thereafter, oral argument was heard. My decision on the motion is made in the context of the following procedural history.
Neither Respondent Crowley nor Respondent Christensen engaged in any unsafe or unsound banking practice, nor is either Respondent an institution-affiliated party as that term is defined in 28 U.S.C. § 1813(u)(4).
1. Summary Judgment on all issues in favor of Respondent Crowley & Cuneo is granted on the Notice of Charges and of Hearing, and the Notice is dismissed as to said Respondent.
In the Matter of
This proceeding was initiated by the Federal Deposit Insurance Corporation (Petitioner) upon the issuance of a Notice of Charges and of Hearing (Notice) dated August 10, 1990. By Motion for Recommendation to Grant a Summary Judgment dated December 5, 1990, Respondent Janice J. France (Respondent France) moved for summary judgment on the basis that this case contains no triable issue of material fact. Petitioner filed a December 14, 1990 memorandum of points and authorities in opposition to Respondent France's motion for summary judgment. Respondent France filed a December 19, 1990 Reply to the FDIC's Memorandum of Points and Authorities. By Notice of Joinder of Respondent Berrien E. Moore (Respondent Moore) dated December 19, 1990 and Notice of Joinder and Re-
The following facts are undisputed:
Summary judgment on all issues in favor of Respondents Janice J. France, Berrien E. Moore, Leonard S. Sands and Ada P. Sands is granted, and the Notice in this proceeding is dismissed with prejudice in so far as it relates to each of the Respondents. |
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Last Updated 6/6/2003 | legal@fdic.gov |