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[¶5227A] In the Matter of James L. Leuthe and Harold R. Marvin Jr., First Lehigh Bank, Walnutport, Pa., FDIC Docket Nos. FDIC-95-15e and FDIC-95-16k (9-25-95)
Request for private hearing denied because none of the reasons proffered by respondents distinguishes this proceeding from others. In addition, federal law requiring public hearings preempts state law and order of state court that protect some of the confidential information at issue. (The decision was affirmed by the United States Court of Appeals for the District of Columbia Circuit, 194 F.3d 174.)
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[.1] Practice and Procedure—Hearings—Public or Private—Standard
Two fundamental propositions determine whether to grant a request for a private hearing: (1) only significant safety and soundness concerns can justify a private hearing and (2) a respondent must demonstrate entitlement to a private hearing by showing in a very concrete manner that its concerns differ so significantly from the concerns of other respondents as to warrant special treatment.
[.2] Practice and Procedure—Hearings—Public or Private—Standards
The FDIC repeatedly has refused to order a private hearing on the basis of allegations that confidential information will be disclosed or on the basis of speculative allegations that the bank in question will be harmed or suffer a run.
[.3] Practice and Procedure—Hearings—Public or Private—Protective Orders
Administrative law judges have authority to take steps to avoid or minimize the disclosure of confidential information such as by requiring the filing of documents under seal or redacting them.
[.4] Practice and Procedure—Hearings—Public or Private—Conflict with State Law
The federal law requiring public hearings preempts any state law or state court order that conflicts with it unless the FDIC has been a party to an agreement or order of the state court requiring protection of confidentiality.
In the Matter of
JAMES L. LEUTHE and
HAROLD R. MARVIN, JR.,
individually and as institution
affiliated parties of
FIRST LEHIGH BANK
WALNUTPORT,PENNSYLVANIA
(Insured State Nonmember Bank)
DECISION AND ORDER ON REQUEST FOR PRIVATE HEARING
FDIC-95-15e and FDIC-95-16k
BACKGROUND
On June 23, 1995, the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Intention to Prohibit from Further Participation and a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing (collectively "Notices") against Respondents James L. Leuthe and Harold R. Marvin, Jr. who were, at all pertinent times, institution-affiliated parties of the First Lehigh Bank, Walnutport, Pennsylvania. The Notices allege that Respondents engaged in numerous unsafe and unsound practices and committed repeated violations of law and breaches of fiduciary duty.
This matter comes before the FDIC on the Request for Private Hearing filed on July 19, 1995, by Respondents. FDIC Enforcement Counsel filed an Opposition on August 2, 1995.
DISCUSSION
In support of their request for a private hearing, Respondents have presented three arguments: (1) the need to avoid disclosure of highly confidential information contained in Reports of Examination, management responses to those Reports, and subsequent correspondence; (2) the possibility that adverse publicity may cause a run, and (3) the need to avoid disclosure of the contents of proceedings protected by court order and state law. As discussed below, based on the analysis articulated in the FDIC's previous decisions, none of these arguments warrants granting the request.
[.1] The standards for deciding whether to grant a request for a private hearing under 12 U.S.C. § 1818(u)(2) are well-settled, having been at issue in eleven cases, beginning with the seminal case, In the Matter of The Citizens Bank of Clovis, Clovis, New Mexico, FDIC-91-406b, 2 P-H FDIC Enf. Dec. & Ord. ¶ 8012 (March 2, 1992). In Clovis and subsequent cases, the FDIC established two fundamental propositions: (1) in light of the presumption in favor of public hearings embodied in section 1818(u)(2), only significant safety and soundness concerns could
{{2-29-96 p.A-2782.2}}justify a private hearing, and (2) a respondent must demonstrate entitlement to a private hearing by showing in a very concrete manner that its concerns differ so significantly from the concerns of other respondents to warrant special treatment. These propositions were reaffirmed most recently in In the Matter of Larry J. Whitehead, Doris D. Palmer, Mary H. Ray, Lewis W. Fortenberry, The Bank of Walnut, Walnut, Mississippi, FDIC-94-40k, 2 P-H FDIC Enf. Dec. & Ord. ¶8030 (Aug. 1, 1994).
[.2,.3] Based on its interpretation of the inquiry mandated by Congress in section 1818(u)(2), the FDIC has repeatedly refused to order a private hearing on the basis of allegations that confidential information will be disclosed or on the basis of speculative allegations that the bank in question will be harmed or suffer a run. E.g., Clovis, ¶ 8012 at I-48; In the Matter of National Bank of Pakistan, Karachi, Pakistan, FDIC-92-183c&b, 2 P-H FDIC Enf. Dec. & Ord. ¶ 8018 at I-62 (Aug. 11, 1992); In the Matter of Charter Pacific Bank, Agoura Hills, California, FDIC-92-253b, 2 P-H FDIC Enf. Dec. & Ord. ¶ 8022 at I-71 (Nov. 30, 1992); Whitehead, ¶ 8030 at I-103. In its decisions, the FDIC has stressed that these allegations do not distinguish a particular respondent from others in the same circumstances. The FDIC has also made clear that the administrative law judge ("ALJ") has authority to take steps to avoid or minimize the disclosure of confidential information such as by requiring the filing of documents under seal, redacting them, or taking other steps to protect the confidentiality of that information. E.g., In the Matter of Visalia Community Bank, Visalia, California, FDIC-93-141b, 2 P-H FDIC Enf. Dec. & Ord. ¶ 8028 at I-95 (Sept. 16, 1993); Clovis, ¶ 8012 at I-48.1
[.4] In light of the discussion above, it is clear that none of the reasons proffered distinguishes this proceeding from others, particularly since Respondents have presented no concrete evidence that adverse publicity or disclosure of confidential information might cause a run and harm the bank. In addition, while Respondents place a great deal of reliance on the state law protection of some of the information and on the state court order, based on state law, sealing the previous proceedings, that reliance is clearly misplaced. The federal law requiring public hearings preempts any state law or state court order that conflicts with it unless the FDIC has been a party to an agreement or order of the state court requiring protection of confidentiality. In this case, although the Request (p. 3 ¶ 13) alleges that the FDIC "consent[ed] to the Stipulation of Settlement," the FDIC did not sign the Stipulation, and paragraph 20 of the Stipulation of Settlement makes clear that the FDIC is not bound by the agreement of the Pennsylvania Department of Banking to the Stipulation. Accordingly, neither the Stipulation nor the state court order requires that the FDIC close the hearing in this case.
In sum, Respondents have not made the showing required by the FDIC's decisions to justify a private hearing. Accordingly, the Request for Private Hearing is denied. However, as stated above, the ALJ has broad authority to take steps to preserve as much confidentiality as is consistent with the public nature of the hearing.
ORDER
For the foregoing reasons, it is hereby ORDERED that the Request for Private Hearing is DENIED.
Pursuant to delegated authority, upon the advice and recommendation of the General Counsel.
Dated at Washington, D.C., this 25th day of September, 1995.
1 As the FDIC implicitly recognized in the Visalia case, it is almost impossible in section 8 proceedings to avoid all public disclosure of confidential information, or, for that matter, negative information about the institution in question. The Congressional presumption in favor of public hearings assumes that there will be some public disclosure of information that is derogatory and some of which would otherwise be confidential under applicable statutory and regulatory provisions. The balance struck by Congress in enacting section 1818(u)(2) necessarily concludes that the benefits of public hearings outweigh whatever costs such hearing impose in the form of bad publicity and disclosure of confidential information.
