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FDIC Enforcement Decisions and Orders

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   [8020A] In the Matter of Tarrant Bank, Fort Worth, Texas, Docket No. FDIC-91-38a, 10-20-92.

   FDIC Board rules moot and declines to hear enforcement counsel's appeal of an ALJ's order reconvening a hearing because the date for the reconvened hearing had passed.

   [.1] Practice and Procedure—Interlocutory Appeal—Special Permission to Appeal—Standards
   For FDIC Board to hear interlocutory appeal there must be an unresolved issue of general application, or clear error below that will result in prejudice to a party if the matter is not immediately decided by the Board.
   [.2] Practice and Procedure—Termination of Insurance—Delay in Proceedings
   Delay of proceedings in a termination of insurance case presents some danger to the insurance fund and can only be justified by extraordinary circumstances.
   [.3] Evidence—Post Hearing Evidence
   FDIC Board and ALJ will consider the most recent reliable information available about a bank's financial condition, but its accuracy must be verified.

In the Matter of

(Insured State Nonmember Bank)



   On June 12, 1991, the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") initiated this proceeding by issuing a Notice of Intention to Terminate Insured Status, Findings, and Order Setting Hearing ("Notice") to Tarrant Bank, Fort Worth, Texas ("Bank"). The Notice alleged that the Bank has engaged or is engaging in unsafe or unsound practices in conducting the business of the Bank and/or is in an unsafe or unsound condition to continue operations as an insured depository institution and that its insured status should be terminated pursuant to section 8(a) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(a).
   The case was assigned to Administrative Law Judge Steven M. Charno ("ALJ"). He held hearings on April 22, 1992 and on June 10–11, 1992. On August 28, 1992, the ALJ issued an Order stating that based on his reading of the post-hearing briefs filed by the parties, "the outcome of this proceeding may turn on the quality and extent of Respondent's earnings during 1992." Order at 1. He therefore ordered a further hearing to begin on September 15, 1992, in order to test "the accuracy of the evidence concerning Respondent's purported earnings between January 1 and August 30, 1992." Order at 1, 2.
   On September 2, 1992, FDIC Enforcement Counsel filed a Motion for Special Permission to Appeal Administrative Law Judge's Order Reconvening Hearing and Motion for Stay of Order Reconvening Hearing ("Motion"). The Bank filed a Response to the Motion on September 10, 1991. On September 8, 1992, this matter was referred by the Executive Secretary to the Board for final disposition.


   [.1] This request for interlocutory review, in a proceeding initiated prior to August 9, 1991, is governed by section 308.31 of the FDIC's former Rules of Practice and Procedure ("Rules"), 12 C.F.R. § 308.31 (1991). Consideration of this matter by the Board is now moot because the date for the hearing has passed before the Board was able to consider the request. However, the Board notes that there is no prejudice to any party since the request does not meet the standards for interlocutory review. Accordingly, the Board dismisses this request as moot.
   Section 308.31 of the former Rules provides that the Board may grant interlocutory review of an ALJ ruling if:
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   (1) The interlocutory appeal involves an important, unresolved issue of general application that should immediately be decided by the Board or
   (2) The interlocutory appeal involves clear error below, and the rights of a party are likely to be prejudiced if the matter is not immediately decided by the Board.
   12 C.F.R. § 308.31(a)(2)(i) and (ii).
   In its Motion, FDIC Enforcement Counsel alleges that both grounds for interlocutory review are present. In FDIC Enforcement Counsel's view, an important and controlling issue which the Board should decide immediately is involved: the extent to which an ALJ can reopen the record in a termination of insurance case. FDIC Enforcement Counsel also believes that resolution of this issue will expedite the termination of this proceeding.
   While the Board recognizes that there is always some danger to the insurance fund in permitting termination of insurance cases to be subject to any delays or reopening, it has, in certain cases, permitted presentation of additional evidence to avoid unfairness to the respondents, most recently in In the Matter of First State Bank of Marlin, Marlin, Texas, FDIC-90-207a (Aug. 4, 1992). Thus, there is no controlling issue of law presented by the case; rather, these matters are highly fact specific and must be decided on a case-by-case basis. Moreover, the information presented by FDIC Enforcement Counsel concerning the evidence to be proffered and their ability to rebut that evidence, while necessarily vague perhaps, does not furnish a sufficient basis for deciding even this individual case. Thus, in the Board's view, no important or controlling issue of law requiring an immediate decision was presented by this case.
   The Board also does not believe that granting interlocutory review would have expedited the ultimate termination of this case. Because of the lack of specific factual information concerning the evidence to be presented, the Board could not have rendered a decision which would have advanced the inquiry in this case. In sum, FDIC Enforcement Counsel's Motion fails to satisfy the criteria contained in the applicable regulation, section 308.31. The Motion must, therefore, be denied.

   [.2] However, this proceeding does raise several concerns. First, the Board is concerned with the extensive delays that already have occurred in this proceeding and the violation of the fifty-day rule for submission of the case set forth in former section 308.40(a)(1), 12 C.F.R. § 308.40(a)(1) (1990). The record contains no explanation as to why a second hearing in June of 1992 was necessary. A delayed procedure in a termination of insurance proceeding can only be justified, in the Board's view, by extraordinary circumstances. The delay of yet a third hearing in this proceeding is unprecedented and therefore raises serious concerns. The Board expects that all parties and the ALJ will expedite the completion of all remaining proceedings in this matter and the ALJ will promptly submit the case to the Board.

   [.3] Second, the Board takes termination proceedings very seriously, and in the past, as is indicated by the Marlin Bank case, has been willing to consider the most recent reliable information available on a bank's financial condition. See also In the Matter of Bank of Salem, 2 P-H FDIC Enf. Dec. & Ord. ¶5164 at A-1663 (Feb. 28, 1991). The evidence must contain some indicia of reliability in addition to its presentation through sworn testimony. For example, in the Marlin Bank case, the Board accepted evidence presented by an independent state-appointed conservator of the institution. Cf. Bank of Salem, ¶5164 at A-1663 (Board declines to rely on unverified evidence proffered by the bank's management). Similarly, the Board has been wiling to consider information from current Call Reports since false information in such reports may subject the directors of the bank to personal civil money penalty liability.
   Finally, to the extent that the ALJ accepts post-hearing evidence concerning only the Bank's earnings, he must carefully test the credibility of such information and seek verification of its accuracy. At a minimum the ALJ must address two issues: (1) the impact of the lack of current information on other critical areas of the Bank's performance, and (2) the source of the income, i.e., whether the earnings suggest a recurrent source of income for the Bank or are the product of non-recurring events such as asset sales.


   For the reasons set forth above, it is hereby ORDERED that FDIC Enforcement Counsel's Motion for Special Permission to Appeal is DENIED as moot.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 20th day of October, 1992.

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