Lawrence Dodge v. Comptroller of the Currency
744 F.3d 148
D.C. Cir.2014Background
- Dodge, CEO/director of American Sterling Bank, faced OTS concerns about declining capital reserves by 2007–2008.
- Bank reported four capital contributions later deemed non-qualifying between 2007 and 2008.
- Contributions included CRP loan participation, MGF loan, 9800 Muirlands receivables, Mountain View income.
- OTS inspection in 2008 required reversing non-qualifying contributions; bank became critically undercapitalized and was placed in receivership in 2009.
- OTS issued notices in 2010 proposing prohibition for Dodge and civil penalty; ALJ recommended prohibition and $1M penalty; Comptroller adopted.
- Petitioner Dodge challenged on grounds of evolving standards and asserted good intentions and holding-company backing; court reviews for substantial evidence and legality.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| whether Dodge violated §1818(e)(1)(A) via unsafe or unsound practices | Dodge contends standards were evolving; actions not knowingly unsafe | OTS and Comptroller found unsafe practices harming capital | Yes; unsafe practices supported by evidence. |
| whether the misconduct was established under §1818(e)(1)(A) | Dodge argues no clear standards at the time | Court may rely on contemporaneous regulations and GAAP | Sustained; misconduct established. |
| whether the effects prong supports prohibition | No substantial harm; holding-company funds mitigated risk | Risk to depositors existed; capital appeared well to regulators | Yes; potential prejudice to depositors shown. |
| whether culpability/willful disregard proven | Standards unsettled; intent to shore up bank | Dodge acted with good intentions under evolving rules | Yes; substantial evidence of willful disregard and personal dishonesty. |
| whether civil monetary penalty proper | Penalty excessive; mitigating factors present | Pattern of misconduct and gain justify penalty | Penalty upheld; $1M supported by record. |
Key Cases Cited
- Proffitt v. FDIC, 200 F.3d 855 (D.C. Cir. 2000) (tests for legality of prohibition and substantial evidence)
- Kaplan v. OTS, 104 F.3d 417 (D.C. Cir. 1997) (definition of reasonably foreseeable risk and grounds for prohibition)
- Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000) (personal dishonesty and unsafe practices standard)
- Wachtel v. OTS, 982 F.2d 581 (D.C. Cir. 1993) (evidence standards in agency actions)
- Kim v. OTS, 40 F.3d 1050 (9th Cir. 1994) (scienter standards in regulatory actions)
- De La Fuente II v. FDIC, 332 F.3d 1208 (9th Cir. 2003) (financial gain/benefit analysis)
- Pharaon v. Bd. of Governors of the Fed. Reserve Sys., 135 F.3d 148 (D.C. Cir. 1998) (standard for reviewing penalties; substantial evidence)
- Skidmore v. Swift & Co., 323 U.S. 134 (1934) (persuasive power of agency interpretations)