Berniece Larimore, Sam M. Taylor, William G. Butcher, and Orville Bottrell v. C.T. Conover, Comptroller of the Currency

deferring employees’ designation consequences. The and so Tax- contributions” contributions, are “picking up” Similarly es deferred taxes reduced. By tax. wages change reported their inter- on the may preserve both W-2 governments form affects the of income from of the contributions amount nal characterization made, private exclusions be and it the tax benefits that which re- and achieve they adjusted regularly gross do make duces the income from employers deductions may contributions.” be made. One tax “employers’ effect breeds another. None of this mat- employ- employee stuck with ters. outcome of this case follows no it is. Un- designation, matter what er’s employer’s power desig- from the to elect by the contri- Illinois statute called til 1981 employee. nations with tax effects for the System Judges’ to the Retirement butions designation Before 1982 the in Illinois was contributions. This remitted employees’ by that the contributions were made rule Judge presumptive Howell employee, is that. salary is We could not taxable. the whole argument “picked accept his state Affirmed. 1982—be- his contributions even before

up” money either be-

cause he never saw after the law and never has

fore or new destination —with-

had choice about its reversing of the most vener-

out either one (that principle taxation

able tax) money pays the full or dis-

earns permits employ- the rule

regarding designate by as made LARIMORE, er to contribution it Taylor, Berniece Sam M. employee. Illinois made one G. and Orville William (us- years and now Bottrell, Petitioners, choice before contributions) right “pick up” it Judge has made another. Howell bound CONOVER, Comptroller C.T. by both. Currency, Respondent. substance, This exalts form over Nos. 84-1971 84-1974. tax, however, form and sub- doubt. stance often coincide. The election be- Appeals, United States Court employers’ employees’ tween contribu- Seventh Circuit. nothing form, tions is but new Argued Feb. 414(h)(2) designation option simply in § practice. apply continues the A court must Decided Nov. fidelity empty distinction the same with applies any Congress may

as it other.

choose, wishes, employers if it to allow pension consequences

control the tax

contributions, and of one de- the selection is neither than anoth-

vice better nor worse dealing

er. “When we are art, dichotomy

terms form-substance

is a false one. can ‘Substance’ from forms the statute

derived created

itself. Here form and little substance is

else; there is no natural law reverse mergers.” Isenbergh,

triangular Joseph Form Taxa-

Musings and Substance

tion, U.Chi.L.Rev. Heckenkamp,

Robert G. Heckenkamp & Simhauser, P.C., 111., Springfield, Richard Hershey, Bliss, Beavers, Hershey, G. Per- Romano, 111., Taylorville, iard & for peti- tioners. Broadman,

Ellen Comptrol- Office of the D.C., of Currency, Washington, ler for re- spondent. BAUER, Judge, COFFEY,

Before Circuit BROWN, Judge, Circuit Senior District Judge.* BROWN,

WESLEY E. Senior District Judge.

Petitioners, past present Auburn, the First Bank of Mt. National Illinois, petition review of a Decision Order issued and Cease and Desist May Currency 12 U.S.C. pursuant provisions 1818(b)(1). Comptroller’s Order fol- a 1982 audit of the bank dis- lowed had, of directors closed that the board instances, provision of 12 six violated the imposed lending Sec. 84 which limits the terms bank. Under Order, petitioner and Desist di- Cease indemnify the required are all incurred on account losses excessive loans. jurisdiction

This over Peti- Court has Review, affirm, power to tion for with the terminate, Comp- modify, set aside or * Brown, Kansas, designation. sitting by Wesley District of E. District Honorable Senior Judge, of the United States District Court for the Order, cy pursuant has reasonable cause to believe that

trailer’s 1818(h)(2).1 sect. of U.S.C. the bank directors ... or other person participating in the conduct of the include in this case presented The issues violating affairs of such bank ... or not 12 U.S.C.A. question of whether law, rule, regulation has violated ... a 1818(b)(1), Comp which authorizes agency may ... issue and serve “to take order bank directors troller to the conditions the bank or such director ... a notice of affirmative action to correct thereof____” of 12 resulting” from their violations U.S. charges respect ment of C.A. Sec. proof should of knowledge encompass on the require part of ^[*] # ^{[*] [*] [*]} Sft agency “In the liability found in 12 event ... shall find a condition of addition, 93(a). the di any specified In in the U.S.C.A. Sec. violation ... requiring resti established, rectors claim that the Order charges notice of has been supported by substantial tution was not agency may issue ... order to evidence; Comptrol that the action of the any cease and desist from such violation arbitrary capricious; ler and that was practice. may require or Such order ... jurisdiction had no over the or its bank directors ... cease and Bottrell, resigned prior to en director same, and, further, desist from the try and Desist Order. of Cease take action to correct affirmative proceed- times relevant to these At all any vio- conditions ings, provided 84 of 12 U.S.C. that the (Emphasis sup- practice.” lation or any of obligations total national bank plied.) any person, partnership, association or cor- The Cease and Desist Order on review poration any time exceed could not at 10% May here was entered on follow- capital of stock of the of the amount ing hearing before an Administrative Law actually paid unimpaired, in and bank Order, Judge. issuing Comptrol- In unimpaired surplus of fund.2 Fol- its 10% adopted findings ler some of the lowing report examin- an audit Judge, Administrative Law and made inde- ers, which disclosed violations of the lend- pendent findings of fact and conclusions

ing limits of Sec. the Office of the hearing, from the evidence adduced at the Currency initiated Cease to the effect the directors had all proceedings against the Bank Desist knowingly provision of 12 violated Directors, pursuant to his approving U.S.C. Sec. 84 in six 1818(b). section, That under U.S.C. Sec. parties. The Bank ordered different was Deposit codified under the Federal Insur- money not to lend or to extend credit to Corporation, provides ance for termination exceeding any in an amount borrower of a status as an insured bank. bank’s lending and the limits (b) Paragraph provides that: that section directors was ordered to “cause all loans or If, “(b)(1) appropri- opinion of credit are in ex- other extensions which banking agency, any ate Federal insured provided in limitations cess director, officer, any employ-

bank ... or to conform- 12 U.S.C. Sec. 84 to be reduced ee, person agent, participating or other the Bank.” ing amounts without loss to the conduct of the affairs of such a bank adopt poli- engaged, agen- required The Board also engaging or has or the aside____ (administrative) filing petition, "Any proceeding, Upon party set of such affirm, any person required by jurisdiction an order issued un- such court shall have ... any terminate, aside, der this section to cease and desist from modify, or in or set whole herein, may practices stated the violations agency.” part, the order of the filing obtain a review order ... appeals the court of of the United States for the has since been amended and different 2. Sec. 84 circuit in which the home office of the bank is prevail. now standards petition praying located ... a written modified, terminated, agency order of Within one month after the 1980 exami- prevent recur- procedures cies and nation, the Porter and Varvel lines of credit violations. rence of similar acceptable to an level. were reduced addition, required the Di- the Order board, Starting July, using Butcher, Larimore, Bottrell, Mul- approval procedures followed from loan Oc- Bank, indemnify the Taylor to berry and tober, July, again until once liability” respective potential “up to their approved a series of excessive loans to Bank has or losses that the for all Varvel, as other Porter and well as four loans to the a result of excessive incur as loan limits. parties, violated bank’s Bill customers: Porter Con- following bank Bottrell, officer, who acted as loan Orville Truck- Company; County Twin struction actually made the loans and distributed Varvel; Montgom- Keith ing, Inc./Robert meeting, At a later board funds. Moore; Thomas; and John ery; William Thursday held on the first usually was potential The total liabili- Dwight Thomas. month, during list of the loans each made $1,084,883 ty for the individual directors previous month was distributed to the $744,053 Butcher, $1,084,- Bottrell, for for directors. This list contained the name of Larimore, $1,052,176 Mulberry 883 for (cid:127) borrower, loan, the date $1,084,883 Taylor.3 and rate, of the loan and interest and amount background which led to the The factual the due date. There was no information as basically outstanding without all and Desist Order is to the total amount of loans Cease borrower, Bank of Mt. and no information con- dispute. The First National lending cerning the bank’s limits under Sec. small, federally is a chartered bank Auburn on the list. appeared Auburn, Septem- in Mt. Illinois. located ber, 1980, consisted its board of directors 1980, resigned Bottrell as In late Herbert Bottrell, Gardner, Chris Orville of Herbert director, longer a member of was Larimore, Bottrell, Berniece Albert Mulber- resigned po- the board. Chris Gardner Taylor. Bottrell was ry and Sam Orville December, 1981. sition as director manager of the President and the active parties to the persons These two were not bank, handling managing all loans and proceedings below. administrative Berniece portfolio of the bank. investment 7, 1982, January petitioner Wil- On Cashier, and she was Larimore was appointed to fill a liam G. Butcher was operations. for overall responsible directors, vacancy on the board reelected, along with other was 9, 1980, September the Office of the On 26, January on Comptroller began an examination of the

bank, discovery Bottrell, led to the that the who was petitioner, Orville approved bank, resigned of directors had that office bank’s board president 1982, 31, was not and he exceeding the limitations of Sec. 84 December on January as a director on reelected separate lines of credit William on two Butcher became petitioner William County Trucking/Robert and Twin Porter resig- upon Bottrell’s president of the bank examiner At that time the bank Varvel. nation, in that office he remained findings all of the di- discussed his filed petition to review was the time the rectors, limit they were told of the loan this Court. potential liability on and of their violations exer- illegal They were cautioned to loans. of the vari- and character The amounts The ex- more over loans. the limits of Sec. cise exceeded ous loans which report way discussed at a In no can disputed. written was not aminer’s 84 are “minimal”, to have been copy made avail- be said meeting, and a violations A second examination inadvertent. to review. able for all directors meetings certain at directors’ attendance are attributable to 3. The differences in office, approved. loans were directors’ various terms of and/or 20, 1982, bank, August Larimore, completed on Taylor Bottrell and knowingly approved credit, loans for Porter revealed excessive Con- extensions of struction, including standby credit, County/Varvel, William letters of Twin to Por- ter, Moore, Moore, County/Varvel, Montgom- Twin Montgomery, Keith John Thomas ery, Thomas, subsequent J. Thomas and D. Dwight Thomas. A exami- nation, 14,1982, U.S.C. Sec. completed on December that director knowingly approved likewise as an audit conducted in ex- well informal credit, including tensions of April, revealed that these lines of letters cred- it, Thomas, credit, subsequent January except for D. remained in to these lending six bank customers.6 excess of the limits of Sec. 84. example One is the Porter Construction governing One of the oldest laws 3,1981 July line excessive on which became lending by national banks are the $11,000. with the advancement Prior to set out in 12 limitations U.S.C. Sec. time, balance Porter line of which dates back to 1864.7 Since $94,199. Thereafter, credit was the bal- knowingly directors who violate the limits ance on this line reached a total amount of personally have been under 12 liable $820,982, $543,624 of which were due to 93 for losses sustained the bank on loans made after Mr. Butcher became a excessive loans. See Corsicana Nat. 1983, $477,320 April, director.4 As of Johnson, Bank charged this line credit had been off as provides L.Ed. Section 93 County/Varvel loss. The Twin line became violate, knowingly that if the directors 10, 1981, by excessive on June a loan of knowingly permit any reg violation of laws $7,200. date, Prior to that the balance was ulating banking, rights banking all $94,874. eventually The line was increased thereby association “shall be forfeited.” $183,470, $145,501 of which was extend- by The violation is to be determined a fed joined ed after Mr. Butcher the Board. eral court in brought purpose a suit for the established, The evidence likewise with by before the bank is de dispute, out that all of the excessive loans dissolved, and, clared “in cases of such board, approved by

were the entire as it violation, every participated director who made, existed at the time the loans were or assented to the held same shall be liable 6 dissenting with no abstentions or votes.5 in capacity and individual any There was no evidence that director association, damages all which the inquired investigated about or the out shareholders, any person, other shall account, standing any although balances on consequence have sustained in of such vio readily that information was available to Corsicana, Supreme lation.” In Court evidence, each director. From such recognized that a director’s under Comptroller determined that a violation of (then U.S.Rev.Stat., Sec. 93 Sec. knowing U.S.C. Sec. 84 was a 9831, violation Comp.Stat. Sec. 6 Fed.Stat.Anno.2d deliberately “if a director 873) refrains from p. assenting Ed. to an excessive investigating duty that which it was his upon negli loan was not to be based mere investigate, or if he gence knowing otherwise should have since a and intentional act the facts required. subject known which constitute a viola was This rule was however, qualification, tion of law.” He further concluded if that a director standby stipulated 4. The balances include letters of credit It was that Butcher is not liable for 7, January issued after any credit which unlawful extensions of oc- prior his election curred as member of the Mulberry 5. Since director was absent from the board of directors. July August, meetings, he was approved not held accountable for loans in his 3, 7. R.S. Sec. 5200 derived from the Act of June absence. 1864, 29, 108, c. Sec. 13 Stat. the National Mulberry died after the Cease and Desist Or- Bank Act. der was made. His estate has been relieved of liability, party and it is not a to this review. investigating “deliberately knowledge present refrained from al peti- there. The duty investigate, which it was his Taylor tioners Butcher and particular any resulting violation of the statute must they claim that had no actual knowledge of regarded as ‘in effect intentional’ be lending bank, limits of the and no 40 S.Ct. at 64 L.Ed. at 251 U.S. knowledge that the loans exceeded those also, Anno. 119 L.R.Fed. 606. 147. See limits. Butcher Taylor claim they prior experience bankers, had no as Apart power from the of a Court knowledge letters of credit issued Comp to act under Sec. whenever Bottrell, by Taylor claims that as an troller a bank director has violated believes director, “outside” he was rely entitled to limits, statutory lending may as in the expertise officers, of other bank here, administrative enforce case initiate inquire and had no as to the status under 12 Sec. proceedings ment applicant. of each loan found, 1818(b).8 Comp If a bank, may order the and its di troller The standards of Comptrol- review of the “to cease and desist” from the un by ler’s action are established statute and and he further order practice, lawful 1818(h)(2) numerous decisions. Section action taken “to correct that affirmative provides Title 12 U.S.C. that review of the the conditions vio Comptroller’s provided orders shall be “as 1818(b)(1) practice.” lation or Section in Chapter 7 of Title 5.” Title Sec. 706 Ninth au been construed Circuit to governs agency our review of actions: requiring thorize orders com necessary “To the extent to decision pensate for losses incurred reason of presented, the reviewing violations of a bank’s limits under questions law, shall decide all relevant Conover, 84. del 682 F.2d Junco interpret constitutional and (9 Cir.1982), cert. den. 459 U.S. provisions, and determine meaning L.Ed.2d applicability of the agency terms of an There, here, argued the directors action. 1818(b) incorporates scienter re reviewing “The court shall— quirement knowledge found in Sec. 93. determined that even if the The Court 1818(b) “knowingly” applies standard to an (2) hold unlawful and set aside agency (a question proceedings, enforcement not action, findings and conclusions found to determined)—the directors were liable be be— they knowledge identity cause had (A) arbitrary, capricious, an abuse borrowers, knowledge pro discretion, otherwise not ac- company, ceeds were to be used one law; cordance with

knowledge of the loan amounts Hí 5k H* Apparently, these di bank’s loan limits. loans, (E) aggregate unsupported by substantial evi- rectors failed to Junco, required by Sec. 84. In del in a case ... otherwise reviewed dence “(direc explicitly pointed agency hearing Court out that an on the record of statute____” operate tors of a national bank in an area provided by law, closely regulated by federal and can Comptroller’s findings The factual are to as a ignorance not maintain of the law upheld supported by if substantial evi- F.2d at 1342. defense.” 682 Conover, supra, 682 dence. del Junco v. Comptroller’s F.2d at 1340. Because of the distinguish seek to Petitioners expertise, choice of remedies premise regulatory that actu- his del Junco case dealings. Independent Comptroller supervises See Bankers Ass’n v. 8. The the entire national Heimann, (D.C.Cir.1979), banking system provisions 12 under 613 F.2d 1168 seq. power has the U.S.C. Sec. et He 66 L.Ed.2d cert. den. 449 banks, status, charter national examine their 26 directors, regulate remove all of the bank's plain language ex- of Sec. 1818 authorizes the not be disturbed 1818 “will under Sec. arbitrary, capri- Comptroller against to issue orders “di- the exercise cept when persons participating contrary to First Nat. rectors ... and other law.” cious or Smith, 610 F.2d Lamarque v. in the conduct of the affairs” of the bank— Bank of Cir.1980). (5 solely not “current directors.” Bottrell is subject without doubt of the ad Following our review respon- can not and he avoid record, sum and the evidence ministrative simply by sibility resigning under the law above, we determine marized hearing was conducted on the before finding that the directors Comptroller’s charges. lending limits of “knowingly” violated supported by evi substantial The Order of the is Af- Sec. 84 Comptrol further find that dence. We firmed. requiring the di remedy ler’s choice of compensate bank COFFEY,

rectors to Judge, dissenting. Circuit excessive by approval of losses caused majority postulates the main capricious arbitrary an loans was not in this case are issues whether U.S.C. clear, in that there is a remedy choice of 1818(b)(1) incorporates the scienter re- § remedy which corrects for a rational basis quirement of 12 U.S.C. and whether § from the harm that results the financial Comptroller’s supported decision The violations unlawful conduct. directors’ arbitrary substantial evidence or was oversights mere minimal or a here were not capricious. approach This overlooks a banking regu implement failure to obscure preliminary issue: crucial whether petitioners As lations. bank grants U.S.C. § conducting responsible for the busi were Currency to order in a safe and ness of the association sound nationally individual director of a chartered law. The manner and accordance with personally indemnify the bank for previously had warned of directors been losses from the violation of by the comply need to with loan limits legisla- U.S.C. 84. The statutes and the § au Comptroller during the 1980 Office of Congress history reveal that never tive in- special exemptions for dit. There were grant tended to the author- directors”, or for “outside directors” “new liability upon ity impose obligations respect to their to conduct pursuant in a man the affairs of their bank lawful 1818(b)(1),and thus I would vacate the ner. as an act never order legislative enactment contemplated Petitioner Bottrell contends be statutory authority beyond the longer he is no a director or officer cause 706(2)(c). bank, 5 U.S.C. subject juris Comptroller. to the See he is not § agree majority’s under if I were to and orders of the Even diction 1818(b)(1) 1818, interpretation of 12 U.S.C. 12 since of U.S.C. § granting in the “person participating not a is directors, liability upon impose personal Such conduct of the affairs” of the bank. not, firmly that such I do I believe merit. While Bottrell which contention without imposed January liability cannot be absent knowl- a director on was not reelected as statutory part on the 25, 1983, edge amended of a he was served with the mini- at a initiated these the individual director. Charges Notice 1982, mum, Comptroller’s I reverse the prior to would proceedings on December Butcher, Wayne who respect to All of the evidence order with the end of his term. directors of the First joined the board of an active director establishes he was Auburn, (the Illinois Bank of Mt. oc National when all of the violations had no knowl- “Bank”) January in 1982 and person that he was the curred and warning Office edge of the 1980 excessive loans. actually made all the Currency edge prior of the Bank’s excessive loans to County. date, Porter and Twin After regarding (“OCC”)1 to the other directors approved further the board additional loans granting loans in procedure their loan County to Porter and Twin as well as addi- by 12 the limits established excess of tional loans excess of the lim- U.S.C. § its to three other individuals. I July On the OCC conducted again another audit of the Bank and discov- that in late 1979 and The record reveals lending ered limit violations. On Novem- continuing long before Butcher into 9, 1982, the OCC served the Bank ber directors, the appointed to the board of was of directors with notice of the viola- to Porter approved Bank loans Construc- tion of U.S.C. and commenced ad- § (“Porter”) County Trucking tion and Twin proceedings ministrative to obtain a cease (“Twin County”) in excess of the statu- Co. against Following and desist order them. 84, which, in Sec. tory limit set forth hearing pursuant U.S.C. time, that the total loans to provided 1818(b)(1), judge an administrative law § company were not to any one individual or (“AU”) that liability determined should be gross capital percent exceed ten imposed upon all of the bank Septem- 84. In bank. See except for whom AU found an audit of the OCC conducted ber know, “did not nor ... have reason to the Bank and discovered excessive know, approving that he was loans viola- report, admonished loans. In its the OCC tion of Section 84.” The AU found that: lending the Bank’s the bank directors that “Respondent Butcher became member sloppy and needed revi- procedures were January of the BOARD on 1982. He sion, stating, necessary “It that directors prior experience no as a bank di- had more effective over exercise rector. At time before commence- in- report the loan area.” The OCC also July ment of the Bank examination on the Bank had formed the directors that he informed was total statutory lending limits in violated the amount of the line of credit extended to making the loans to Porter Twin Coun- the BANK. More- any borrower from of the extent ty and advised the directors over, he not aware of the October personal liability for these potential of their July Report of Examination before addition, excessive loans. the OCC bank examiner met with the then directors Jj; SjS 8}S 8}! Ht # (Butcher September was not a mem- time) of the board of directors at this ber that re- does not show ... record [T]he lending limit and discussed the violations put Butcher was on notice to spondent potential liability. and the director’s Sub- surrounding facts inquiry make into the sequently, reduced the outstand- the Bank by the approval of loans BOARD.” brought the of the loans and balances (emphasis original) percent compliance with the ten loans Comptroller disagreed with AU’s time. period limit Soon decision: thereafter, Butcher July before under same “Mr. Butcher was board, joined the board of directors in- applicable law and to to observe to Porter and approved once more facts as were the vestigate the relevant prescribed County in excess of the Twin he should have other percent ten limit. approving loans in that he was known 84. In this re- of 12 U.S.C. joined the Bank board of di- Butcher § that Mr. Butch- 7, 1982, spect, it not a defense no knowl- January rectors legal Trucking County Co. exceeded the Bank di- Twin 1. The OCC examiner met with the September lending 12 U.S.C. § in late and warned limit established them that loans to Porter Construction position, applicants operative to the or that he loan er was new was still opera- joined familiar with the bank’s Butcher the in January was not 1982, and Butcher tions.” was unaware of the shortcomings procedure this since he liability against assessed privy warning regard- was not to the 1980 approving action in Butcher for his ing necessity partic- of more active percent ten made excess ipation approval of the board in the loan joined limits after he the board. procedure. As a result of the lack of com- September eighteen some authorities, munication from the Bank ei- board, joined months before Butcher careless, ther intentional or Butcher was present directors of the OCC warned not informed of the total amount of loans loans, problem of excessive and also outstanding lending above the current limit more directed the board to “exercise effec- under Sec. 84 at the time of granting loan area.” The tive over the the additional loans referred to. Butcher was not made record reflects that warning, aware of the much less the di- II rective, July Only until after the 93(a) Title 12 provides: U.S.C. Section approved by excessive loans had been “If the any directors of national bank- board, including approved by those Butch- violate, association shall knowingly er, placed was Butcher on notice of the knowingly permit officers, any of the procedures. Bank’s loan careless agents, or servants of the association to The record sets forth that at the time of chap- violate of this examination, Bottrell, the OCC’s 1980 Mr. ter, rights, privileges, all the and fran- president, the Bank also Bank’s chises of the thereby association shall be officer, lending personally chief would in- shall, forfeited. Such violation how- vestigate applicant a loan and based on his ever, be determined and adjudged by a approval, granted the loan would be proper district or Territorial court of advance of the board’s review. Bank’s brought in a suit United States for procedure provided that at the next board purpose by loan, meeting following granting name, Currency, in his own before Bottrell would advise the board of the association shall be declared dissolved. previously ap- loans he had for made violation, every And in cases of such time, proval. At this he would submit participated director who in or assented including documentation the borrower’s to the same shall be held liable name, date, loan, amount of the and the capacity and individual for all However, interest rate. the data failed to association, damages which the its share- important reveal the information as holders, person, other shall have outstanding amount of loans then consequence sustained in of such viola- particular individual, much less maxi- tion.” mum permitted amount the bank was 93(a) (originally U.S.C. Sec. enacted as particular pursuant lend to a borrower to. 53) (empha- Act ch. June 12 U.S.C. 84. the board entrusted added). sis Bottrell, officer, position in his responsibility ensuring with the Since 1864 the of the Cur- compliance applicable rency Bank’s with the lend- has been invested with the board, ing limits. The for reasons undis- to file a lawsuit in Federal district record, against closed either failed or re- bank directors in their individual procedure despite capacity damages resulting fused to revise the loan from their warning knowing banking the OCC’s 1980 and directive re- violation of laws. Al- garding though action excessive loans and the order technically supervision.” to “exercise more effective case before us is an order to Consequently, procedure reviewing indemnify, practical it has the effect of an against judgment a occurs to the institution before remedial personal enforceable action is effective.” damages by sustained the director Comptroller in in- the the bank.2 S.Rep. reprinted No. 1966 U.S. in Bank adjudicating the di- case is stant Cong. Code & 3536. I have Ad.News personally filing ever liable without any'express been unable to discover lan- Act, in district court to “deter- guage Federal in much in a lawsuit less alleged legislative history, providing Comptrol- violation adjudge[ and ]” mine[ ] authority unilaterally ler act in to 12 U.S.C. 84. § imposing personal liability upon di- Supervisory The Financial Institutions to be in of 12 rectors found violation 89-695, granted Act of No. Pub.L. Instead, proper reading a § authority to Comptroller the commence legislative its history Act and reveals against and actions institutions cease desist Congress empowered Comp- that when a bank en- finding a in the event of troller to issue cease and desist to orders banking in or unsound gaged an unsafe institutions, purpose financial its rule, law, regula- a or or practice violated provide to immediate cessation and tion, statutory language does not but the statutory correction of un- violations and infer, authority grant much less to banking practices safe rather provide than impose per- Comptroller Currency to expanded power Comptroller for the damages upon bank di- liability for sonal unilaterally usurped imposing per- language specifically reads: rectors. liability upon sonal bank directors. require the bank may order ... and “Such The 1978 amendment to 12 U.S.C. officers, employees, and 1818(b)(1) this pur- did not alter basic § [any agents to and desist from such cease pose provide for the immediate cessa- —to further, and, or to take practice] statutory tion and correction of violations to correct the conditions affirmative action banking practices merely and unsafe —but any prac- such violation of a and de- authorized issuance cease Id. I am at a loss to understand tice.” “any if and a sist order bank or interpreted language this can to how director, officer, employee, agent, or oth- Comptroller power and au- grant person participating er in the affairs of thority to than an immediate do other issue engaged statutory viola- such bank” prevent further cease and desist order to Finan- banking practices. tions or unsafe condition of the financial deterioration Regulatory cial and Interest Institutions have nationally banks that en- chartered Rate Act of Pub.L. No. 95- Control statutory gaged violations unsafe 107(a)(1) (1978). The 1978 amend- § practices. ment did increase the number situations supervi- “It is that the federal essential might exercise which the agencies ad- sory have order, issue a cease and desist authority to facility quickly my ministrative move I discover but have been unable require adherence effectively legisla- or its how the amendment research infer, might provide law and cessation and correction un- much less history tive power invest practices____ Existing any language improper explicit safe impose authority in consuming remedies be so time ... liability on bank directors. injury personal and cumbersome substantial jurisdiction power to have agree courts shall If I were that the has the herewith; require compliance but liability upon impose order director, provided in section except this would be tantamount as otherwise his order jurisdiction judgment If to affect district court. neces- shall have entered sary, injunction the issuance or en- or otherwise any or order under this notice forcement "may apply to the United its discretion review, section, modify, suspend, termi- or to ... enforcement States district court for the nate, order.” aside such notice or or set outstanding notice or effective 1818(i)(1). section, 12 U.S.C. and such order issued under 900 (1978)

Instead, merely ages may the new statute en only be from recovered individual immediately act in ables directors after the of institution a lawsuit timely an efficient manner order filed in the “proper district Territorial prevent might that further deterio court,” 93(a), thus, 12 U.S.C. Sec. 93 § of financial ration troubled institutions. specific procedure mandates a for used, “Correctly powers ... these new can Comptroller damages. to recover Al effectively ability enhance the of finan though the Judge Administrative Law stat regulatory agencies cial institution to cure ined decision “Section 93 is not a S.Rep. unsafe unsound situations.” No. practicable alternative in the circumstanc 323, (1977). Cong., 95th 1st Sess. 7 es, because presupposes that section 12 interpreting language of U.S.C. Bank,” ultimate dissolution of the the case- 1730(b) 1818(b)(1), 12 identical to U.S.C. § § law the contrary. is to In Cockrill v. Coo that, Tenth concluded “The Circuit Act per, (8th 1898), F. stated, 86 7 Cir. the court only permits the Bank Board to ensure that shall content ourselves with the “[W]e in legal, a institutions conduct their affairs statement that the a bank's forfeiture of manner.” Savings safe sound Otero franchise, brought by a suit comp Loan v. & Ass’n Federal Home Loan not, troller for purpose, judg is our (10th 279, Board, 665 Bank F.2d 288 Cir. ment, precedent a condition to the main 1981). Thus, legislative history both the against tenance a suit its directors of for add judicial interpretation of the 1978 (emphasis excessive loans." Id. at 13 support amendment the conclusion that the ed). See also Seiden 443 Comptroller’s power cease and desist is lim 384, (S.D.N.Y.1978). F.Supp. 385 Further curtailing statutory ited to violations and more, Supreme Court in Corsicana Na banking practices, unsafe but does not 68, Johnson, tional Bank v. U.S. mention, even much less allow for the im (1919), S.Ct. 64 L.Ed. 141 specifically position personal liability. of noted, “The of spite fact that a loss It report should be noted that the Senate this transaction the Bank [excessive loan] specifically very states that limited prosperous” remained solvent or even situation, unjustly “where an insider has not a defense to an action under Sec. 5239.3 expense enriched himself of the insti- 83-84, Id. at 40 S.Ct. L.Ed. 141. tution, [Comptroller] may find it more Accordingly, adequate relief can be ob directly against effective to action take against tained with the institution aof suit return property rightfully individual for of pursuant a director to See. and I know belonging S.Rep. to the institution.” No. caselaw, statutory language of no nor Cong., 95th In light 1st Sess. 7 has any presented, authorizing been the very language of limited in the Senate expand Comptroller to a cease and desist report referring unjust personal enrich- imposition personal order to include the of ment, I fail to Comp- understand how the damages. a director to recover interpret can provision troller this for a With the of enactment Sec. it is obvi- restitutionary remedy equivalent Congress ous that intended that remedy case, damages in the instant “[i]f banking directors of national absolutely associa- proof per- where there knowingly tion ... report shall violate sonal enrichment. The Senate also states, chapter, rights, all expected “It will be that this author- ity privileges, and franchises of the association issue cease and desist will be [to orders] adequate thereby utilized in those cases where shall be forfeited. Such adjudged by relief cannot shall be determined otherwise be obtained.” Id. ... Congress provided proper dam- district or Territorial court require language Both § Cockrill and Corsicana 93. The of Sec. insti- U.S.C. 5239 remains money damages of a except renumbering tution lawsuit to recover unaltered for the intact and liability pursuant from directors to establish statute to 12 predecessor Rev.Stats.: of 12 brought University Chicago, non v. a suit States United 677, 696-97, 1957-58, of the Curren- by the purpose Thus, to directors are be (1979); Luther, bank cy____” L.Ed.2d 560 v. Martin 689 only after re- liable adjudged personally (7th Cir.1982), fact, F.2d 115 and in legal pro- ceiving constitutional and all the Congress when 1818 amended Sec. to reach in a trial in every citizen tections accorded individuals, it also amended Sec. 93 add- a district court before a United States (b) ing provid- a subsection to that statute peers. These jury pro- of their judge or a imposition penalties for the civil of and effectively abolished tections are statutes, upon banking violators of federal if is cast aside clear intent of Sec. 93 Sec. altering prior without content of Sec. grant 1818(b)(1) interpreted Comp- to is Thus, it is evident the absence of a prosecutor, act authority troller the to as legislative clear contrary enactment to the unilaterally issue jury and judge, and Congress that no repealing had intention of indemnify individual director to order to an language of the contained in 93 of An of this nature tanta- the bank. action Banking by implication Act when it judg- district court entry mount to the of amended without the bene- against ment the director My research has revealed two cases fit of a trial. interpreting authority Comptrol of the of con- It is canon a “well-established 1818(b)(1) ler pursuant impose to Sec. single provision a will not be struction that personal liability upon In bank directors. interpreted general pur- as so to defeat Dept. First National Bank Eden v. of particular informs a pose that animates and (8th Cir.1978), Treasury, 568 F.2d 610 attribute to legislative scheme. We ... an order to and issued cease [Congress] general overriding intent to a alia, requiring, presi that desist inter that undermine viti- avoid results would a reim vice-president dent and bank specific provisions.” purposes ate the $61,000 paid in bonuses to them. burse Donovan, 771 v. F.2d County Milwaukee validity challenged of the bank (citations omitted). (7th Cir.1985) 986 $61,000. The court order to reimburse Consequently, “when courts are confronted language of Sec. merely recited the coexistence, ‘capable it is with statutes stated, 1818(b)(1) requirements “The courts, clearly absent imposed are in the order authorized expressed Congressional intention ” statute,” pro law analyzing the without contrary, regard each effective.’ as any legal reasoning. 568 F.2d viding Robertson, 422 FAA Administrator v. Eden, however, 611. The order in 265-66, 2140, 2149-50, 45 95 S.Ct. of an order of restitution nature (1975)(quoting Regional L.Ed.2d Rail 164 employees’ unjust enrichment redress bank Cases, Reorganization 419 U.S. Act or damages, rather than and the bonuses 133-34, 335, 353-54, 42 L.Ed.2d repaid were traceable to dered to be (1974)). Congress 1978 vice-president. Because president 1818(b)(1)it amended amended Sec. neither employees’ involved a case Eden part of re- nor rescinded that Section enrichment, Comp unjust the action damages against indi- quiring suits that ordering case restitution troller and ad- vidual directors be “determined very well sustained read could judged by proper district or Territorial contemplated by specifically having been “Congress presumed court.” know Hawkins, narrow lan Congress as revealed laws,” v. own United States But ex- (9th Cir.1955); Report.4 guage of Senate also Can- F.2d see sequently not address this the Eden did the bank 4. The decision does not recite intelligently read right Eden cannot be to have issue. officers in Eden ever asserted their proposition supporting right construed as a court determine the provides impose personal them for bonuses, personal liability upon authority impose alleged granting con- of excessive Congressional pand clear intent let Congress con be confronted with the issue cerning involving situations a bank di of whether to cast aside the constitutional gain rector’s financial into a fact safeguards guaranteed to all United States nature, where there is situation in single citizens and entrust individu- enrichment, any personal evidence falls al—the respon- alone—the sole quicksand, of itself a foundation with sibility prosecu- to act as the legal authority sup out case law or tor, judge jury of the officers and Conover, port same. In Del Junco nationally directors of chartered banks. (9th Cir.1982), denied, 682 F.2d 1338 cert. L.Ed.2d 993 m (1983), upheld the court an order to di majority analysis with the s indemnify rectors to the bank for losses ^disagree ^ .1818(b)(1)granting U.S.C. the authori- § (similar resulting illegal from loans to Comptroller the to impose personal ^ hablllty bar), again case at but failed to address or Furthermore, directors. I be uPon analyze authority Comptroller of the to beve provide ^be record to fails substantial prosecutor, judge jury act as and and uni evidence to finding petition suPPort impose Thus, laterally personal liability. to Wayne Butcher, knowingly violated 12 er> date, analyzed court the alleged has and the Comptroller thus s or § authority Comptroller Curren der to Butcher indemnify to the Bank’s cy imposing issue order lia losses should be reversed. bility upon directors. argues, it Junco, OCC as did in Del Congress intended that the The U*af brought s™ce this action under Sec. damages able to be obtain from indi- ^ 1818(b)(1) demonstrate, it need not as it adju- vidual directors a suit been after has must under Sec. that the director know- dicated in the United States district court specified violated the limits in pursuant where Sec. the accused is ^ 1818(b)(1), 84. Section as panoply rights ’entitled to his full and U.S.C.^ provides pertinent amended protections. powers granted The that: Parf> Comptroller pursuant to Sec. 1818 are only upon “if any made record such illegal to be exercised to correct and/or hearing, agency shall find unsafe banking practices and unsound practice violation unsafe or unsound institution, protect consumers, specified charges in the notice of the investors from involved further deterio- established, may been agency issue ration. exceeded the upon and serve director, the bank or the scope authority of this when he issued the officer, employee, agent, per or other petitioners order in this case and the participating son in the conduct of the order of the Comptroller must be vacated. affair of such an order bank to cease and Comptroller, The support, without caselaw prac desist from much statutory authority support less may require tice- Such order ... action, his has somehow read into the en- directors, officers, employees, bank or its abling legislation allowing him to issue agents, persons and other participating cease and desist the alleged orders authori- hi U*econduct of the affairs of such bank ty impose personal upon liability same, and, t° cease desist directors that from was never intended Con- further, to take action to gress. Should the affirmative determine correct conditions that he needs the unilateral (em practice.” such violation impose personal liability anV without added) phasis effectively trial to obligations fulfill his duties, upon petition it him to The incumbent OCC relies the italicized statu- Congress enabling legislation tory language purpose this and the remedial judicial adjudication competent jurisdiction.

directors without a in a United States court of “knowingly” approved of section 1818 the director the enactment behind statutory loans excess amount. not position that the OCC need support its “knowingly” that a director demonstrate The Ninth Circuit the Del Junco deci- loans, required approved required sion was not to reach issue support limit. knowledge require- To it excess of since found that S.Rep. contained in Sec. Comptroller cites ment 93 was satisfied position, (1977), Accordingly, under facts of case. Cong., 1st Sess. 7 No. 95th the Del Junco decision failed address of the cease application which discusses im- the issue whether could be di- proceedings and desist officers 1818(b)(1) under posed without first states, part, report rectors. demonstrating “knowing- that the director unjustly enriched an insider has “where approved ly” in violation of 12 expense himself at the institution [ ] Similarly, majority opin- U.S.C. § having agency jurisdiction regulatory question does reach the ion not whether find it more effective over the matter liability may imposed under Sec. 1818 directly against the individu- to take action showing absent that the director “know- belong- property rightfully al for return approved ingly” of loans in excess of the ing to the institution.” limit, statutory majority since the holds Congres- feebly attempts expand to clear that sufficient evidence was introduced to authority to is- providing sional intent the Comptroller’s support the decision that power into desist orders the sue cease and “knowingly” approved Butcher had of upon impose liability directors personal prescribed in statutory loans excess of the “expressly the envi- argues that Senate limits. taken that some of the actions sions Assuming Congress arguendo that did by against individuals section 1818 [under grant intend to the the authori- compensation for Comptroller] the will seek ty imposing personal to issue orders liabili- the they losses inflict on a bank.” But legislative ty, statutory terms and his- language upon relies 1818(b)(1) tory Congress of Sec. reflect extremely ap- report is limited and Senate liability impose not intend to with- did a plies specifically only restitution- proof knowingly that the director vio- out ary remedy employees’ unjust for bank en- any To other adopt posi- this section. lated richment, in this and there is no evidence 93, to eviscerate Sec. and a tion would be support theory any one record to cases, see, of Na- long e.g., line Corsicana of the Bank much less 68, Johnson, 251 U.S. Bank v. tional Further, unjustly enriched himself. 82, (1919),imposing per- 64 L.Ed. 141 S.Ct. language report does not narrow liability upon a director sonal in a right to trial cast aside a director’s a knowingly approved of loans in she has ac- United district court where the States set in 12 of the limits forth excess panoply rights of cused retains full general statutory rules of con- inability In protections. view of OCC’s position. Comp- support this struction caselaw, much less any to cite statute or liability personal contention—that troller’s significant legislative history behind 1818 without may imposed be under Sec. 1818(b)(1) support amendment to Sec. knowledge demonstrating any on the first departure a such marked the enforce- disregards completely part of directors — ment set in Sec. 93 and the policy forth 93, language of Sec. casts aside the construing section, it is more caselaw a director must have “know- requiring that Congress not merely apparent that did than a ingly” approved of the all-in- intend to vest liability may be assessed before personal liability imposing “that power clusive It is axiomatic statu- against him. provisions, possible, made in excess whenever should tory a director consistent with construed so as be statutory limit without first establish- be other,” Spencer to Save jurisdiction that each Citizens ing court of federal a EPA, 600 County regarded v. States F.2d violation must United statute be ” (D.C.Cir.1979), 844, and “when 71-72, courts as ‘in effect intentional.’ Id. at ‘capable statutes are confronted with 141; S.Ct. at 64 L.Ed. see Ather also co-existence, court, it is Anderson, (6th ton v. 86 F.2d 518 Cir. congressional a intent to absent clear 1936), grounds, rev’d other ” contrary, regard each as effective.’ (1937); 58 S.Ct. 82 L.Ed. 500 White Robertson, 265-66, 422 U.S. at 95 S.Ct. Thomas, (9th Cir.1930). 37 F.2d 452 2140, 2149-50, 45 L.Ed.2d 164. As dis- assessing the surrounding facts Butcher’s above, II cussed Section amend- “knowledge,” cognizant we are that it is 1818(b)(1) ments do not reveal an not a defense that a director not does know by repeal Congress intent Sec. 93. Sec- i.e., law, that he did not know bank provides tion 93 that: money any not lend one individual “If national bank- corporation excess limit knowingly shall association violate imposed by See, Junco, e.g., Del chapter, of this ... 1342; F.2d United States v. cf. rights, privileges, all the and franchises International Minerals & Chemical thereby shall of the association be for- Corp., 402 U.S. shall, however, feited. Such violation 29 L.Ed.2d 178 Directors adjudged proper determined and bank are entrusted with the re absolute district or Territorial court of United sponsibility general to maintain brought in a purpose States suit for that over the escape bank’s affairs and cannot ... before associ- for losses from misman shall ation be declared dissolved. And in agement grounds on the violation, every eases of such director they delegated management exclusive participated assented control of the bank to its officers. See same shall be held liable in his Thomas, 454; White v. 37 F.2d at see also capacity and individual all dam- Cir.1982), North, (2d Joy v. 692 F.2d 896 added) ages____” (emphasis denied, rt. 460 U.S. ce 1498, Thus, Congress expressed intent of as 75 L.Ed.2d certainly, 930 But prohibits in 93 from in a president, situation where the Bank imposing personal liability a upon bank di- acting officer, also as lending the chief rector unless he suit commences a in the continued fail to advise the proper district and establishes that Butcher, including prior of of amount knowingly the director violated outstanding granted loans to the individual personal liability Section 93 upon affixes or corporation, a is responsible director not “knowingly directors of banks violate “provided for losses exercised ordi [he has] ...” of the Banking of the nary in discharge care of own [his] Banking Act pro- while See. 84 of the Act duty Cooper, as Rankin v. director[].” vides that it is unlawful for director to (C.C.W.D.Ark.1907). 149 F. 1013 participate in or assent to loans made in in narrow issue this case is whether there of excess In limit. Corsica- place is sufficient evidence in record na, 251 U.S. 40 L.Ed. 141 S.Ct. 64 person acting a reasonable (1919), interpreting the seminal case Sec- capacity of bank circum director Banking Act, tions and 93 84 of the stances, violations; notice of the Supreme important Court attached a most Corsicana, phrased whether limiting qualifying and caveat to the deter- duty investigate Butcher had a loan of the lending mination when a violation of major balances of Bank’s accounts and limit contained in Sec. 84 would be con- “deliberately whether Butcher refrained” “knowing sidered or intentional.” The investigating from balances. those ruled if a “deliberately Court director his case he investigating refrained that which it Butcher overstates when as- duty investigate, any imposing duty investigate was his serts that a a sponsible reviewing an un- impose would to determine loan balances bank’s directors, es- upon anything appears bank burden whether unusual or out reasonable large Of flag” institutions. pecially place warning. those at of to raise a “red course, investigate exists duty to hand, whether a the other smaller On at person what a reasonable depend upon obviously will personally would be more banks a would capacity in the director acting banking opera- in the day-to-day involved and cir- specific facts have done under the tions, including daily a review of bank’s There individual case. cumstances lending practices. Regardless of the size however, principles, general certain are bank, a duty director is the in fulfill- bank directors guide that should act same—to as a reasonable director responsibilities. their respective would under similar circumstances—and particular: investigate the failure a director to a duty and of the board right “It is the presented loan particular with evi- the affairs supervision maintain a suggesting any irregularity, impro- dence bank; general knowl- to have priety, illegality of that loan result business which its edge of the manner responsible. being in the director held “Di- of that conducted, of the character and cannot, justice to those who deal business; such a have least and to bank, eyes with the shut their to what is as to intimacy affairs degree of with its It is going duty on around them. their whom, security, know to what ordinary diligence ascertaining use given; credit are large its lines of business, condition to exercise of, give direction generally know reasonable control and of its to, important gener- regard Thomas, 37 officers.” White v. F.2d at 454 bank, of the cash- al affairs Webb, 7, 15, (quoting Martin v. not They details. are ier executes the (1884)). 28 L.Ed. 49 S.Ct. every the routine of expected to watch investigate director business, particular day’s or observe the specifics particular of a loan when accounts, there state unless knows, or under the circumstances should reason____” special aware, reasonably of informa- have been (9th Thomas, F.2d v. White suggesting irregularity, impropriety or tion Cir.1930) Anderson, (quoting Gibbons “deliberately refrainpng] illegality, added). “If (1897))(emphasis F. de- investigating” may result in the nothing knowledge has come to the [of the di- personal liability of of termination suspicion to some awaken directors] rector. thing going wrong, ordinary then atten duty of director arises The the bank suffi tion to the affairs of the institution is position accepts he or on moment she If, hand, the other directors upon cient. directors, and director of no board bank’s ordinary of care know or the exercise inaction or her action or may defend his known, any have would should facts which she is a grounds merely on suspicion put a man prudent awaken and of a di- Recognizing the extent novice. guard, degree of care com on his then responsibilities, pro- banks should rector’s to mensurate with the evil be avoided adequate personal liability insurance vide makes required, a want that care and challenged of di- coverage for acts responsible.” Cooper, Rankin them scope of acting when within the rectors 1010, 1013 large (C.C.W.D.Ark.1907). In F. responsibility in order their and banks, of di the board committees qualified and the most and to attract retain responsibili are entrusted with understand experienced directors who reviewing day-to ty monitoring scope of their duties. nature day of the bank. Further transactions Comptroller points events two more, it is the directors incumbent putting Butcher on he considers as they also that large banking institutions that sloppy lending practic- re- of the Bank’s notice review minutes of the committee es, requiring investígate Butcher the Porter closely “be certainly observed” major loan balances of the Bank’s ac- put director, would a holdover bank First, counts. the minutes of the Bank’s knowledge prior of the Bank’s loans to meeting for March indicate Porter in excess of the statutory lending concern over the Porter line of credit. The limits, investigate account, on notice to minutes disclose: “Discussions of loans to and the failure to investigate might very Bill Porter Construction with common well be considered a “deliberate” violation agreement that all future transactions be duty of that if another loan had been made closely pro- Present contract observed. corporation. Yet, same individual or obligations.” should reduce ceeds sec- that same certainly discussion would not early ond incident occurred soon Butcher, have had the impact same board, joined after Butcher knowledge had no previous the OCC’s Thomas, Dwight Butcher learned that a warning concerning Porter, excess loans to balance, outstanding whose loan unknown judgment per- a reasonable Butcher, limit, exceeded the son, the facts surrounding the loan transac- bankruptcy. had declared inci- These two might tion very well be deemed insufficient dents, themselves, certainly are insuffi- place Butcher on notice investigate. place cient to Butcher on notice of the Dwight Thomas’ declaration bankruptcy scope problems with the overall lend- clearly put Butcher on investigate notice to ing practices of the Bank to find that Thomas; however, future loans to no loans investigate spe- Butcher had a were extended to Thomas after the fact of question. cifics of the loans in The record bankruptcy became known to Butcher director, discloses that a new had problem and thus the did not arise. knowledge whatsoever of the OCC’s record, From the facts in the it is obvious warnings to the other directors con- the Comptroller measured Butcher’s cerning previous the Bank’s violations of conduct a different standard than that limits, statutory lending nor of the used to measure the other Bank directors’ sloppy lending Bank’s procedures, nor of conduct that the OCC had warned the the OCC super- directive increase board other 1980 that certain loans vision over loans. The excess loans for violated 12 U.S.C. informed the di- being which Butcher is now held liable potential rectors of their personal liability, granted were in the first six months of his directed the board to “exercise more effec- tenure, specifically January between area,” tive gave over the loan above, July 1982. As noted the fact newly appointed no directive to warn di- that Butcher was a new director does not problems area, rectors of the in the loan mean that he is held to a lesser standard continuing and further allowed di- directors; than continuing it does year grace period get rectors a two mean, however, that the holdover directors policies procedures Bank’s loan in com- facts, knowledge had intimate cir- pliance conducting with federal law before cumstances, warning unknown to directors, a second audit. The after receiv- Specifically, Butcher. Butcher had no ing warning, temporarily reduced the knowledge of the contents of the OCC’s offending limit, statutory loans beneath the (1) report: previ- that the Bank had implement but either failed or refused to ously extended loans to Porter in excess of limit; (2) the OCC’s directive to increase board su- statutory the that the OCC had pervision approval. Consequent- loan directed the Bank to over “exercise more effec- area;” ly, in (3) tive 1982 when the OCC found that the over the loan again by Bank had violated 12 inadequate; that the staff was U.S.C. § (4) extending legal potential person- the extent of loans in excess of the lend- directors’ Thus, limit, liability ing al and also found that the had violations. board March, 1982, nothing improve the discussion at the done to control over loan meeting approval, Comptroller’s that order to the “future transactions” with know, indemnify the nor ... have to continuing directors reason know” that illegal approved violating from he loans Bank’s losses U.S.C. 84. certainly appropri- would have been loans standard “The does not [of review] fully justified, if ate change merely final because the decision order, had to issue had rejects the AU’s determinations. The continu- considering the fact that the when for court decision review is that of the previously had been warned ing directors agency____ The court does not review Indeed, warning. disregarded merely part AU’s decision which is in his remarks at opening OCC counsel for of the record. stated, “In AU hearing before the court into But the must take account case, case will show each I believe our the ‘whole record.’ Because the AU’s constituting of credit these vio- extensions findings record, part factual are of the approved by board of lations had been contrary agency given findings are less very that had by the they weight than would re- otherwise and cautioned and instruct- been warned ceive.” very these same ed in 1980 to correct Saavedra, (citations 700 F.2d at 498 omit- added) Butcher to (emphasis violations.” ted); Corp. see also Universal Camera v. received the same benefit date never NLRB, 456, 468, 340 U.S. 71 S.Ct. less been “cautioned warning, a much (1951); 95 L.Ed. 456 v. Mattes United instructed,” he had knowl- fact (7th States, Cir.1983). 721 F.2d containing report edge of the 1980 OCC obvious, considering It is record directors; yet the warning holdover to the case, including in this as whole the AU’s ordered Butcher indem- still unambiguous finding clear and that Butch- having given losses nify the Bank’s without “put er on inquiry was not notice make same him the benefit doubt surrounding approval into warning and time com- the facts opportunity of warning BOARD,” by the other di- that the fails ply with the record Comptroller thus provide rectors received. The Butch- substantial evidence that finding employed a double standard problems er placed notice as liable, as he reversed personally Butcher lending practices, with the Bank’s or that AU, determined finding investigat- “deliberately refrained facts in the there insufficient were it that which was his investi- finding that Butcher support record gate____” sup- record does not knowledge necessary possessed Comptroller's port conclusion investigate place him on notice further knowingly Butcher violated U.S.C. § approved the Bank board the loans per- Since the can recover directors. damages from director after a sonal a bank jurisdiction federal has deter- with decision, “a reviewing agency’s When knowingly mined that the director violated decisions that agency set aside court must order I would vacate the evi ‘unsupported are substantial ” imposing personal Donovan, 700 F.2d v. dence.’ Saavedra beyond the as an act the directors Cir.1983); (9th also Steadman see scope Comptroller’s authority. Fur- SEC, 450 U.S. thermore, agree I would decision Junco, (1981); 682 F.2d 67 L.Ed.2d 69 Del portion from that of the AU and dissent case, Comptroller re 1340. In this liability on opinion imposing majority’s presided finding of the AU who jected the “did not Butcher.5 hearing that Butcher over clear, remedy cor- Comptroller’s basis for majority rational finds that "the

5. The results from the financial harm that remedy requiring rects the the directors choice of Supra at 896. compensate director’s unlawful conduct.” bank for losses caused reviewing court first decide whether arbitrary “The must approval excessive loans was not scope of statu- agency capricious remedy acted within in that there is choice America, UNITED STATES

Plaintiff-Appellee,

v. CERRO,

Samuel B.

Defendant-Appellant.

No. 85-1112. Appeals,

United States Court of

Seventh Circuit.

Argued Sept.

Decided Nov. has, possess to uni- authority. then does not tory it the court must If damages laterally impose choice was ‘arbi- whether its actual determine capricious, accord- trary, or otherwise not reach the of whether I do not issue ” Oglala Sioux Tribe Indians law.’ arbitrary ance with Comptroller's action in this case Cir.1979) (cita- Andrus, (8th F.2d capricious. omitted). As I believe tions

Case Details

Case Name: Berniece Larimore, Sam M. Taylor, William G. Butcher, and Orville Bottrell v. C.T. Conover, Comptroller of the Currency

Court Name: Court of Appeals for the Seventh Circuit

Date Published: Nov 1, 1985

Citation: 775 F.2d 890

Docket Number: 84-1971 to 84-1974

Court Abbreviation: 7th Cir.