*4 STAPLETON, Before HUTCHINSON, ROTH, Judges. Circuit (West §§ U.S.C.A. 1811-1833 1989 & THE COURT OF OPINION Supp.1994), as amended In- Financial HUTCHINSON, Judge. Circuit Reform, Recovery, stitutions and Enforce- cases, Lawrence consolidated these (“FIRREA”), ment Act of 1989 P.L. No. 101- (“Bai- (“Seidman”) Bailey and John (1989). 73, 103 Stat. 183 ley”) petition for review of the order of the The Director concluded that Seidman’s (“Director”) of Thrift Director of the Office required prohibition conduct him to issue a (“OTS”) subjecting them to ad- Supervision and removal order accord with 12 U.S.C.A. part in for their a loan ministrative sanctions 1818(e). support To this ultimate adminis- Savings Federal transaction Crestmont trative sanction the Director found Seidman (“Crestmont”) considered while Seid- Loan impermissibly position used his at Crestmont Board of man was Chairman of Crestmont’s for his own benefit in order to obtain a (“Board”) Bailey one of its Directors personal guarantee release from his of a Specifically, petitions for re- officers. loan; this loan had made another been Director’s order portion view of that lending partner- institution to a real estate directing him to cease and desist publicly ship process from which Seidman was in the participating unsafe and unsound withdrawing; Seidman’s withdrawal from petition lending practices. Seidman’s seeks *5 partnership being negotiated at portion of the Director’s order review of that Bailey time that made the loan commit- same removing him from his office at Crestmont purchase partnership, ment for a from the banning participation him from and further resulting in the Director’s cease and desist banking industry. in the against support him. As additional for order the Director issued the order When removing his order from Crest- Seidman Bailey, against and he remanded Seidman banning mont’s Board of Directors and him judge law the case to an administrative life, banking from for found the Director also (“ALJ”) ability pay to determine their to civil renotify that failed to Crestmont’s monetary penalties because the who had ALJ Board or Senior Loan of his con- Committee penalty failed to a civil heard the case assess tinuing partnership in the real estate against Bailey properly and to document withdrawing they from while he was $930,000 ability pay civil Seidman’s considering objected the loan OTS to and penalty the ALJ had recommended. attempted later to hinder the question finality raises a remand order ensuing investigation covering up his deciding that we must consider before wheth- part support in preparing a memo of his jurisdiction Bailey’s er we have to review request сon- release. The Director petitions. conclude in Part II Seidman’s We findings of these warranted cluded each jurisdiction.1 that we do have Seidman’s removal as Chairman of Crest- proceeding, In Di- the administrative required perma- mont’s Board him to be Bailey approved a commitment rector found nently banking. barred from money mortgage a purchase for a real 'erred in conclud- We believe the Director buyer buying property estate who was from ing Bailey’s purchase money a issuance of a seller which Seidman had an interest. buyer loan commitment to a from the real approval The Director of this concluded development partnership from which estate commitment was an unsafe and unsound stages in the final of withdraw- lending practice justifying a cease and Seidman was desist 1818(b) serious, Bailey ing exposed Crestmont to the abnor- against order under section (“FDIA”), Deposit Act risk that constitutes an unsafe or un- the Federal Insurance mal against entry of a cease and desist order 1. Seidman and also attack the remand consider him, grant proceedings against order on the merits. Because we will stay him we will Bailey’s petition and reverse cease and desist any monetary penalties concerning assessment of him, against proceedings order those can no finally has decided whether to until the Director longer against Bailey. continue We will there- any and desist from direct Seidman to cease Be- fore order the Director to terminate them. investiga- attempts to hinder OTS in further petition cause of our conclusion on Seidman's pertinent regulatory authority. to its tions that his case be remanded for the Director to Therefore, practice. grant ing, jurisdiction, sound we will for lack of his action to enjoin Bailey’s petition preliminary suspension for review and vacate that order. part commanding order Bai- Director’s I. History Factual and Procedural ley practices. to cease and desist such A. Seidman’s Dealings Business reject preliminary argument
We 1818(e) pro- that 12 U.S.C.A. due violates Lawrence Seidman is attorney in cess to afford him because fails a trial engaged mid-forties who has been in the practice before a fair and unbiased tribunal. We and securities law for conclude, however, twenty years. that the During Director’s find- past decade he ings specialized that Seidman violated 12 has U.S.C.A. in real estate investments and 1818(e)(1) sought begun he pursue when utilize his banking. career In position Crestmont obtain a release group he headed a of investors who purchased from his Crestmont, when he failed to stock a thrift insti- remind Edison, Crestmont’s Board or Loan Jersey.3 Senior tution in New Seidman be- Committee of his interest the real and, estate came a director of Crestmont in Novem- partnership supported by are not substantial ber was named Chairman of its Board Though evidence. properly the Director de- Directors. engaged termined that in an unsafe before he became or unsound attempted when he director, Seidman formed partnership, Ful- hinder investigation, the OTS we conclude (“FSA”), ton Street Associates with James there is no evidence to support (“Zorlas”) Zorlas Rappaport Lawrence finding that Director’s this act of Seidman (“Rappaport”) purchase develop in- receipt resulted in his of an actual benefit dustrial piece condominiums on commer- *6 1818(e)(l)(B)(iii)’s meeting section condition (“Boonton property cial Project”). FSA’s prohibited of an untoward effect.2 Ac- partners made capital substantial contribu- cordingly, grant we petition will Seidman’s tions Project to Boonton and obtained for review and part vacate that of the Di- additional Jersey from United permanently rector’s order removing him (“UJB”), Bank part by secured in all the job
from his at Crestmont banning him partners’ personal guarantees. Seidman list- banking. Nevertheless, because our ed his affiliation with FSA on conflict disclo- conclusion that Seidman did commit an un- sure forms he filed with Crestmont when he safe or unsound when he unsuccess- a became director. fully attempted to hinder investiga- the OTS mid-1990, to decided focus his tion in dealings partners with his former business activities on Recogniz- Crestmont. lender, and their we will remand the case to ing that his outside business ventures could OTS for the Director to entering consider create prevent conflicts that would Crest- cease and order and monetary desist civil making mont from loans, desirable otherwise penalties against Seidman as by authorized Seidman advised the Board that he had be- 1818(b). gun to withdraw from his outside business disposition Our of the merits of Seidman’s ventures and started disposing of various petition requires us to vacate pre- the OTS business interests to his partners. former liminary suspension order for agreed the reasons Rappaport acquire to Seidman’s in- given in Therefore, Part opinion. VII FSA, terest promising in indemnify to Seid- we find it unnecessary to consider man against any Seidman’s continuing obligation on appeal of the district court’s order dismiss- FSA’s loan from UJB without further 2. The exclusively Director relied 1818(e)(l)(B)(ii) on section nate condition of section cre- 1818(e)(l)(B)(iii)’s receipt ating pro- of benefit from a a likelihood of loss to Crestmont. requirements hibited act concerning its meet finding effect and made no that Seidman's con- parties argued 3. At time and briefed these requirement duct met the cases, alternate of section Crestmont was not of the one failed thrifts 1818(e)(l)(B)(i) by posing possibility preju- to the led "S & L bailout.” We have not depositors dice to Crestmont's or the alter- any change other been respect. advised of in this loans, manag- underwriting commercial elude June flowing On to Seidman. consideration producing portfolio, loan ing in a commercial of Ms interest 1991, transfer Seidman’s supervising subject lending of a Crest- new became business Rappaport FSA Bailey authority he testified that had mont’s loan officers. agreement. formal $320,000 $500,000 they had invested if he of less than approve all loans lost offered thought directly Crestmont that he the interests did not involve FSA profit. for potential authority to greater but had no even Crestmont’s directors $500,000 or loans in excess of approve loans agreement, 1st the June before Months officers or directors in wMch Crestmont’s loan worry about however, its started UJB $500,000 Loans over went had an interest. 21,1991, it FSA January sent On FSA. up Loan Committee” made before a “SeMor chance to gave FSA a UJB notice of default. Bailey, and Crestmont’s Presi- default, demed was but FSA cure the (“McClellan”). dent, McClellan S. Griffin default, contending any default would di- which an officer or Commercial loans fund had interest reserve if an been cured proMbited at rector had interest were against its debt. properly credited been Crestmont. sent FSA demand Though UJB then negotiations between payment,
immediate (“Le- Levme In December Steven continued. them vine”) Bailey Realty approached N of S & (“Risko”), a Poole Co. com- & Risko James $466,000 financing for a about office end-user broker, negotiations to handled mercial loan project. Le- Boonton condomimum FSA’s FSA and UJB. dispute between resolve the vine, who had been referred compa- commercial loan was the Poole & Co. $375,000. Zorlas, Bailey sought On UJB. loan ny placed that had FSA Zorlas, Bailey contacted December (“Eberhardt”), chairman Roger Eberhardt loan Rappaport Seidman about Levine’s committee, management real estate UJB’s things request and them how stood asked (“Stackhouse”), the and Thomas Stackhouse in FSA. All partnersMp lending assigned to officer commercial UJB individually represented partners three- FSA loan, key participants the FSA process in the Seidman was Risko, Eberhardt negotiations. and Stack- partnersMp withdrawing from the in- participants, testified that the house all *7 completed “shortly.” would be the withdrawal Seidman, financ- cluding discussed end-user (“Bailey App.”) at 319. Bai- Bailey Appendix Boonton condominiums.4 ing for FSA’s conversation and ley memorialized potential as a was mentioned Crestmont it in a file marked placed a memo about loans, no one testified end-user but source of Rap- Id. Associates.” Financial “Seidman promised to or Crestmont that Seidman Bailey could he told no loan paport testified 20,1991, parties May any On the make loan. until Seidman was out made to Levine be part As the UJB loan. agreed to restructure partnersMp. partners, in- restructuring, the FSA Seidman, cluding signed guarantees personal be would soon out Assured Seidman successful covering million. Seidman’s $4.45 FSA, get on Bailey to a head start decided from efforts be released to assigned Little James the Levine loan proceedings, figure these prominently officer, (“Little”), task loan a Crestmont play significant a ongoing also other events up. Levine writing it Little interviewed role. approved but loan could be and told him the it until taken on could be no other action The Levine Loan
B. involved Little became left FSA. gave paperwork on things and with other Presi- Bailey the Executive Vice is John Bailey complete. Still in- the loan back responsibilities His dent of Crestmont. usually facilitating because financing permits person plans end-user a who 4. End-user price part the end- development buy receives a substantial occupy the unit unit in a exposure reducing on loan pays, its user thus that has The or it to others. institution rent developer. strong to the project has a interest financed the assured that Seidman would soon out directly either indirectly mak[ing] any FSA, Bailey did extensive work on it. purchase any loan to or ... loan made to any party third on the security of real Bailey prepared Summary a Credit for the property purchased any from affiliated February 21, Levine loan on 1991.5 On person of the association prop- unless the 19, 1991, Bailey approved March and Little erty single-family dwelling was owned loan issued letter to commitment occupied by person the affiliated as a sign Levine.6 Levine did not the commit- permanent residence. 30, 1991, May ment letter until Bailey when (“OTS Appendix App.”) (citing at 96-97 $2,000 a check for given exchange for 563.43(c)(1)). 12 C.F.R. poli- Crestmont’s the commitment.7 cies also put its directors duty placing fundamental to avoid them-
C. Crestmont’s Loan Policies any position creates, selves in which leads to or could lead to a conflict of interest or policy Bailey had a loan which Crestmont appearance even the of such conflict of had authored. It was regula- based on OTS accomplishment between the tions and stated: purposes of the association and the policy carefully of the bank ad- personal financial interests of the di- minister extensions of credit which are rectors, officers and per- other affiliated subject special reporting requirements. sons. following: These loans include the 571.7). Id. (citing at 98-99 C.F.R. Spe- cifically, Crestmont’s sup- directors were posed to avoid transaction in which —[L]oans individuals or entities that party purchaser a third seeks to obtain a conduct business or have conducted loan from association real secured business with officers or directors of acquired estate partner- the affiliated the bank. ship or as to which partner- the affiliated These situations are clearly described ship security holds a interest. loan summary. bank’s committee credit Id. at 100. fully Seidman were They presented are to the bank’s Senior policies. aware of these regardless Loan Committee of their size. D. The Garden Park Loan Id. at 314. Crestmont policy, had another also regulations, based on OTS which forbade At the same time that was ne- it from gotiating loan, the Levine Seidman and OTS Summary 5.In space the Credit form is a there 6. The commitment was later modified and reis- May headed "Bank Officers and sued on Bailey, Directors Interest." Unknown to *8 already Bailey says Levine thought had entered heading he into a this Contract of referred to 10, Sale with May FSA on or about Seid- 1991. partner- officers and directors of the Levine formally man did not withdraw FSA, from FSA until ship, developer. Bailey also listed 1, Questioned June 1991. about what would applicant Partnership, “[a] N.J. General happened if Seidman had to with- failed ownership of which is Steven Le- 100% K. transaction, draw a from similar Crestmont's vine Bailey App. and Ned Levine.” at 321. President, McClellan, testified, "We would not Hartwick, twenty-seven year Clarencе a veteran have closed the clearly loan. It was understood Fidelity and an executive at First by all involved that that was a condition to clos- Jersey, in New Bailey’s Bank corroborated un- ing.” Id. at 191. derstanding hearing at a before an OTS ALJ. He testified: negotiated 7. Crestmont that instrument but the negotiation date is unclear. OTS contends That line refers to the borrower. Is the bor- 1, negotiated that the check was before June bank, rower an officer or director of the it's as 1991, interest, the date Seidman transferred his simple as that. Bailey but contends the check was cashed after Id. at 304. entered the word "none” on relinquished partnership. Seidman his Levine’s calling the line for disclosure of "Bank Officers $2,000 delivery check for resulted in and Directors Interest." Id. at 321. Other un- binding days contract two before for- Seidman's derwriting documents included with the Credit (Sec- mal generally See. withdrawal. Restatement Summary clearly ond) (1981). disclosed FSA’s § interest. of Contracts with Risko. prop- tee and to discuss this Seidman dialogue over in tense engaged were approached Risko Eberhardt. Park Associates did so and erty ovmed Garden (“Garden Park”), was at- told the conflict be- which Seidman Risko Eberhardt for financing obligation guarantee at Crestmont. on the arrange tempting to tween Seidman’s Park and fiduciary duties to created had an interest Garden and his Crestmont Seidman develop- guaranteed the personally problems providing in Crestmont’s had also end-user fully Park. Seidman project. for Garden Eberhardt ment for the FSA loans to the in Garden Park put proposal his interest for disclosed told Risko to Seidman’s formally Board and Crestmont writing it. Crestmont release in and UJB would consider it to make the Garden permit asked OTS 30, rapidly. May On Events now moved 1991, denied May Park On OTS loan. day signed the Levine commitment citing C.F.R. request Crestmont’s lettér, him Risko contacted Seidman told 563.43(c)(1) (1991) certain which forbade releasing would consider Seidman. UJB parties.8 Seid- with affiliated transactions suggested draft a letter ask- Risko Seidman Chief Examiner man contacted OTS’s he, Risko, ing and that for the release would (“Do- Crestmont, Joseph Donohue charge of giving the reasons for sign a letter UJB nohue”), explanation of OTS’s for a further request. granting Risko testified Seidman that OTS Donohue told position. agreed he that Seidman would Seidman and impermissi- Park loan the Garden considered request for draft of both the do initial guarantor long remained a so as Seidman ble supporting letter. Risko release Risko’s asked obligation. Park’s Seidman of Garden only approve sign testified he was reconsideration, refused to but OTS still supporting and that Seidman faxed letter loan. allow the that Risko him Seidman testified the draft. secretary and the draft to Seidman’s dictated Release E. Seidman’s from review. it to Risko for she forwarded the UJB Guarantee May conversation his Until being faxed back and While drafts Donohue, seems have believed Seidman Seidman, ex- forth Risko and OTS between permit from that his withdrawal FSA would Angstadt (“Angstadt”) was aminer Thomas loan. After to make the Levine Crestmont using on other business. While at Crestmont Park, Donohue about Garden spéaking with machine, Angstadt fax saw a Crestmont thoughts per- second about had lying on a copy of of Risko’s letter the draft from UJB and of FSA’s loan sonal secretly copied Angstadt read desk. disqualify began to whether would wonder draft. money loaning to Levine The, version of Risko’s letter final completed his withdrawal even after except for sen- the draft one identical with turned to James Poole from FSA. no Seidman had (“Poole”) Co., added.9 Seid- tence Risko Poole & who advised objection addition. guaran- to Risko’s get man a release from UJB aware, Chair- you Mr. Seidman is the subsequent regulation to the As are amended Sav- Board of Crestmont Federal man of the ings decision, Regula- the Code of ALJ’s Federal and Crestmont and Loan Association longer independent OTS contains tions no purchas- entertaining financing condo certain Instead, 12 C.F.R. of interest rules. conflict purchasing units from Fulton ers who are incorporates Board the Federal Reserve 563.43 *9 may position make as Chairman Street. His seq. § regulations et found at 12 C.F.R. 215.1 partner financing impossible if he is also a 45,977 (1992)’ (codified Fed.Reg. at 12 See 57 inability to Street. The finance in Fulton 563.43). provision no in the There is C.F.R. users, opinion, not serve either our does end comparable regulations Reserve Board Federal position Jersey or that of the Bank’s United 563.43(c)(1). text For the to 12 C.F.R. former time, developer. present At the Crestmont 563.43(c)(1), type- see former infra $700,000 financing entertaining two script at 930. buyer potential has indicated a third users and approximately $1 in fi- million the need for follows, willing with supporting reads as con- nancing. letter would be 9. Risko’s Crestmont financing units in the emphasized of condo in bold sider sentence Risko added future area, buyers. assuming qualified Boonton type: face 7, 1991, had faxed to Risko. UJB notified Seidman letter Seidman On June guarantee writing original him from his that it would release never admitted draft later testified of FSA’s loan. Risko’s letter. He said he that Ris- believed Eberhardt the release did not phone UJB understood ko had dictated it over the to Seid- financing, provide (“Green- such obligate Crestmont secretary, man’s Janet Greenhill memo that prepared hill”). but he a handwritten testified she did not remem- Greenhill availability financing of end-user indicated ber these details.12 Seidman admitted from Crestmont was a consideration approved had the text of the letter as sent he UJB’s decision to release Seidman. stating with the additional sentence it would be in UJB’s best interest to free him from meantime, 3, 1991, on June OTS open because that could anoth- loan, prohibited Park the Garden Seid- er source of end-user for FSA. again explanation. for an man asked Donohue told Seidman that be- Donohue now OTS deposed, After he was Seidman learned prevented conflict of interest a thrift lieved that Risko and Poole & Co.’s records had entity making to an an from a loan which subpoenaed by been OTS and Risko thrift had officer or director had testify planned deposition without an interest, liability including guarantee, on a at attorney. called Risko to find out years any time within two before the loan concerning what Poole & Co.’s files contained protested was made. Seidman that such a request for a from release regulations, policy support had no OTS guarantee and asked whether he could re- was not moved. Donohue view the file. Risko testified he told Seid- Frustrated, Seidman ordered that he had a fax of the initial man draft considering stop pro- commercial loans on along showing fax sheets jects in which Seidman had an interest either transmitted from Crestmont. 4, 1991, partner guarantor. as a On June Bailey sent both the Levine and the Garden 16, 1991, September On before his OTS Savings Park loans to the Bank of Rock- deposition, Risko met with Seidman. Seid- 5,1991, super- land.10 On June OTS issued a going man testified Risko told him he was visory forbidding directive tell OTS the letter was Seidman’s idea. any making commercial loans and launched Seidman testified he told Risko this was a lie. investigation for “conflict of interest” pulled Seidman said he reviewed the file and gave rise to the cases now before us.11 relating out a number of documents to his undisputed It is that Crestmont never made request for a release. Risko testified Seid- questioned. the loans OTS man asked him to “make that [the sure docu- get away” ments] thrown and asked Risko to Investigation, Charges
F. The OTS do his “best to make [the sure documents Seidman’s Distriсt Court Action Appendix not around.” were] (“Seidman Though prohibited App.”) Crestmont had made no at 347-48. Risko also tes- none, proposed forget loan and now OTS went on tified that him Seidman told investigation suspected with its into what it documents emphati- ever existed. Seidman regulations cally saying were violations of OTS’s on con- denies ever this. Both Risko 13, 1991, September flict agree of interest. On and Seidman that Seidman told Risko Seidman, deposed focusing OTS on the draft he should tell OTS the truth. added). App. (emphasis at 2 transactions nor the of the UJB mercial outcome proceedings induced Crestmont's decision to 10. Seidman is also a member of the Board of transfer the loans. Rockland, lending Directors but that institu- FDIC, regulated by tion is not OTS. testify put 12.Greenhill did it was her Seidman's initials on letter he dictated to her place
11. The transfer of the loan documents took day and there were no such initials on the initial supervisory one before the OTS directive and *10 days draft of Risko's letter. She was three Seidman also testified it before received word that he would be not unusual released from of the UJB for her take dictation from others his Thus, phone. loan. neither the OTS order to corn- cease over the ing any room to the business of financial institu- Risko left the Things grew tense. tion_” Alprin was left alone at 89. did not recom- Poole. Seidman Id. speak with any monetary Bailey. Poole reentered the penalty against the documents. mend draft, room, picked up the crum- conference the room with it. Seidman it left
pled and G. The Director’s Decision they had a to his office where followed Poole Bailey sought and the Director’s Seidman exchange. grabbed the Seidman heated review of the ALJ’s recommended decision up. it copy of the draft and tore crumpled argument. oral and asked for Director rage “in a testified he did this Seidman request argument a denied the and issued learning copies Risko had made anger” after 4,1992, finding against decision on December documents. Id. at 481-82. of all the relevant issuing Seidman and the Removal and Prohi- informed testified he never Seidman Risko bition Order the ALJ had recommended. copies existed.13 determined, however, The Director that the 30, 1991, filed notice of On October OTS support record was not sufficient to the rec- Bailey.14 charges against On Seidman $930,000 penalty against civil ommended preliminary day, it issued a Order the same the case to the Seidman remanded ALJ removing from his Suspension Seidman concerning to takе further evidence Seid- pay.15 posts at without From ability pay.16 man’s The Director also 1, 1992, 20, 1992, through May Trea- April findings agreed with the ALJ’s recommended (“Alp- sury Department Alprin Walter ALJ Bailey of fact and conclusions of law as to rin”) hearings charges against held on the and entered a Permanent Cease and Desist 13, 1992, August Bailey. On Seidman Order, disagreed con- but he with the ALJ’s recommending that Alprin issued his decision penalties clusion that no civil were warranted a Removal and Prohibition the Director issue against Bailey Bailey’s back for and sent case barring from permanently Seidman Order finding money penalties. further fact on assessing any work in the field and removing support of his order Seidman $930,000 against Alp- him. penalties in civil banning banking, Director him from directing rin also recommended order engaged in self-interested engaging in found Seidman to “cease and desist by insinuating to that a release any practices in conduct- conduct UJB unsafe or unsound n facially leged Suspension destroyed that the Order of ALJ found Seidman the docu- 13. The statutory au- because it exceeded OTS's intentionally invalid thority. was done in a fit of ments “it 17, 1992, February a mo- On OTS filed purpose destroying anger and not for the Federal Rule of Civil tion for dismissal under App. Seidman material and relevant evidence.” or, 12(b)(1), 12(b)(6), in the alterna- Procedure crypti- concluded at 49. The Director's decision tive, summaiy judgment under Federal Rule cally destroyed that the ALJ found had 22, 1992, May the dis- Civil Procedure 56. On While the ALJ found Seid- material evidence. 12(b)(1) granted motion court OTS's Rule trict acts, culpable engaged man in a number of 12(b)(6) the Rule and Rule 56 and dismissed that the AO did not think destruc- seems clear grant we will Seid- motions as moot. Because was one of them. tion evidence petition the Di- for review and reverse man's removing office and ban- rector’s him from order against sought following relief 14. The OTS ning banking, we do not consider Seid- him from (1) immediately preliminary order Seidman: May appeal 1992 order. See man’s suspending at Crestmont Seidman from his office Part VII. infra participating in Crestmont’s and from further affairs; (2) removing his an order Seidman from 15, 1993, challenged January 16.On banning from the office at Crestmont and him by filing legality motion with the of the remand (3) banking industry; disgorging any unjust en- stay proceedings before the Director to further loss; (4) providing a richment or avoidance of also,sought stay We from this Court. ALJ. He loan; (5) guarantee UJB on the FSA civil new stay request without stat- Seidman's for a denied (6) any monetary penalties; other relief ing was on the merits or whether our denial appropriate. Director deemed ad- to exhaust his because Seidman had failed The motion before ministrative remedies. commenced a district court action the time Seidman filed 15. Seidman undecided at remained 1993). (March injunction enjoin seeking preliminary opening further in this Court brief subsequent Suspension not been advised enforcement of the Order of Feb- We have ruary complaint, al- action. In his *11 922 liability
from his FSA would cause Crest- damages but remands on issues of provide mont to immediately end-user for is not appealable. Teledyne FSA’s See project. States, Boonton The Director also found Continental v. United Motors 906 unlawfully 1579, (Fed.Cir.1990). made loan com- F.2d Here the agency mitment Levine while Seidman was still clearly contemplates further action partner Finding in FSA. these acts of self- concerning penalties. long civil So as the dealing were never monetary penalties disclosed Crestmont’s assessment of pending, Committee, Board or the Loan Senior impact the full the may Director’s decisions Director held Seidman breached his fiduciary on Bailey either Seidman or is uncer- duties to Crestmont. The Director also held tain. Seidman violated OTS’s conflict of interest FDIA, parties by Under sanctioned 571.7(b), provision, § sought C.F.R. may any obtain review of order ... personally benefit through from these acts filing in appeals the court of guarantee. the release from his FSA United for States the circuit in which the independently The Director held that Seid- home office of depository institution is attempt destroy man’s and cover- evidence thirty located ... within days after the up during investigation activities vio- order, date of service of such a written 1818(e)(1). lated section He found the at- petition praying agen- that the order of the tempted cover-up, giving which involved mis- modified, cy terminated, be or set leading testimony, destroying original Upon aside.... filing petition, such early record of the fax of the draft of Risko’s jurisdiction, such court shall have which letter from Seidman to Risko and requesting upon filing of the record ... shall forget letter, alia, that Risko about the inter exclusive, affirm, terminate, modify, constituted an practice. unsafe or unsound aside, set part, or in whole the order of The Director that these concluded acts estab- agency. Review of such proceedings personal dishonesty lished within the mean- shall be had provided chapter 7 of 1818(e)(l)(C)(i) ing of section and conferred a Title 5. The judgment and decree of the
personal benefit on Seidman within the final, court except shall be that the same 1818(e)(l)(B)(iii). meaning of section subject shall be Supreme review upon Court
The Director
certiorari....
Bailey
engaged
also held
had
in an unsafe and
banking practice.
unsound
1818(h)(2)(West 1989).
§
12 U.S.C.A.
Noth
Bailey
He found
knew Seidman’s interest
ing
expressly
in FDIA
states that the “or
FSA,
failed to
it to the
disclose
Board of der” must be a final
recognized
one. We
Directors or the Senior Loan Committee and
OTS,
(3d
v.
Cir.1991),
Shea
II. Jurisdiction inefficiency sometimes avoid the piecemeal jurisdiction and, Director had cases, over review some make review these proceedings pursuant to 12 unnecessary. U.S.C.A. Energy CEC Co. v. Public 1818(h)(1). Comm., (3d Seidman and filed time Serv. 891 F.2d Cir. ly petitions pursuant 1989); to 12 Fidelity Television, review see also Inc. v. 1818(h)(2). U.S.C.A. Comm’n, Because of Di Federal Communications 502 F.2d (D.C.Cir.1974) rector’s remand to an ALJ for further find (quoting Chicago & ings Bailey’s ability pay Southern Air Lines v. Corp., Waterman S.S. penalties, civil 103, 113, we must 431, 437, consider whether 333 U.S. 68 S.Ct. 92 L.Ed. petitions (1948) their seek review of a final order. and Isbrandtsen Co. v. United Generally, States, an order (D.C.Cir.), which decides all issues 55 & n. 24
923
order,
denied,
98
Under the Director’s
Seidman is
74 S.Ct.
347 U.S.
cert.
from,
(1954)).
permanently
prohibited
removed
and
1124
L.Ed.
to,
returning
banking industry.
from
Circuit,
concluded,
“in this
In
we
Shea
right
pursue
The order denies Seidman a
by its
finality
disposition is determined
of a
firmly
has chosen.
It also
con-
the trade he
including “whether
consequences[,J”
cludes that Seidman is not fit to be a banker
‘imposes
obligation’
an
or ‘de
OTS’s decision
”
Bailey
repri-
publicly
and that
should be
Shea,
In
17. Our resolution of this issue
enjoined from
had been
supported by analogy
court
and a second defendant
to a district
further
banking prac-
engaging
unsafe and unsound
proceeding
had been
in which one defendant
see,
unbiased,
III. Standard
Review
Murchison,
fair and
In re
133, 135-36,
623, 625,
U.S.
75 S.Ct.
99 L.Ed.
The Administrative Procedure Act
(1955),
it has also held that the Constitu-
706(2) (West
(“APA”),
1977),
5 U.S.C.A.
*13
permits
tion
investigative,
the
prosecutorial
scope
judicial
defines the
of
review over the
adjudicative
and
to be
roles
combined in one
findings
Director’s
and conclusions of law.
agency.
Larkin,
35,
See Withrow v.
421 U.S.
uphold
against
We must
the Director’s order
46-47, 52-53,
1456, 1464, 1467,
95 S.Ct.
43
Bailey and Seidman unless we determine
(1975).
L.Ed.2d 712
Agency administrators
that the Director has
an error of
made
law or
“
presumed
‘capable
are
to be
judging
supported
findings
by
that his
are not
sub
particular controversy fairly on the basis of
stantial evidence on
whole
the
record. See
”
55,
its own circumstances.’
Id. at
95 S.Ct.
FDIC,
1172,
v.
F.2d
912
1173-74
Hoffman
(quoting
at 1468
Morgan,
United States v.
(9th Cir.1990). Substantial evidence is “such
409, 421,
999,
313
1004,
U.S.
61 S.Ct.
85
relevant
might
evidence as a
mind
reasonable
(1941)).
L.Ed. 1429
argues
With-
accept
adequate
support
as
a conclusion.”
permit
row does not
all three roles to be
NLRB,
Consolidated Edison
v.
305
Co.
U.S.
person
combined in one
who also has the
197, 229,
217,
206,
59 S.Ct.
motion that results in a final determination of
TV.
Due
Process
proceeding....”);
merits
id.
Challenge to the Statute
(1993).
§ 509.40
argues
Murchison,
that 12 U.S.C.A.
In
Supreme
Court held
1818(e)
process
violates due
because it fails
statutory
that a
gave
scheme which
a state
hearing
afford him a
before a
judge
fair and
power
grand jury,
to sit
compel
says
unbiased tribunal. He
a sanction
testimony,
so
charge perjury
try
and con-
severe should
person
not be entrusted to a
persons charged
vict the
pro-
violated due
who has the
investiga
Murchison,
combined functions of
133-34,
cess.
at
U.S.
tion, prosecution
adjudication.
Although
Withrow, however,
S.Ct. at 624.
In
Supreme
stated,
Court
held that
has
the Consti Court
“Murchison has not been un-
requires
tution
agencies
administrative
to be
derstood to stand for the broad rule that the
granting
injunctions
tices.
We
injunctive
conclude that the same
effect of
district
appeal-
court in this
penalties
situation would be
imposed
the civil
on Seidman and Bai-
1292(a)(1) (West 1993).
able under 28
ley argues
U.S.C.A.
permitting
in favor
appeal.
McClure,
188, 195,
v.
agency may Schweiker
U.S.
an administrative
members
(1982)).
1665, 1670,
facts,
Y. The
States,
(8th
Cir.1990);
Federal Sav. & Loan Ass’n v. Federal
1818(b)(1) prohibits
Section
unsafe Gulf
*15
Bd.,
259,
(5th
Home Loan Bank
264
argues
and unsound practices. OTS
Cir.1981),
denied,
1121,
cert.
458 U.S.
Bailey’s commitment to the Levine loan con
3509,
(1982).
S.Ct.
amounted to an unsafe
practice.
and unsound
cepted
prudent opеration,
standards of
the
possible consequences which,
if contin-
1818(b)(1) provides:
Section
ued, would be abnormal risk or loss or
If,
opinion
appropriate
the
of the
Feder-
institution,
damage to an
shareholders,
its
banking agency
al
...
institution-affili-
agencies
or the
administering the insur-
party
engaged,
ated
... has
...
in an
ance funds.
practice
unsafe or
conducting
unsound
institution,
depository
the business of [a]
Financial
Supervisory
Institutions
Act of
agency may
...
the
issue
upon
Hearings
and serve
1966:
on S. 3158 and S.3695 Before
however,
18.Congress,
expressed
has
danger
concern
ed that the
power
of abuse of the
has
power
over the exercise of the
to remove a bank-
been reduced to the minimum.
er from office and ban him or her from the
S.Rep.
Cong.,
(1966),
No.
89th
2d Sess.
industry:
reprinted
3539;
in 1966 U.S.C.C.A.N.
see
power
suspend
[T]he
or remove an officer or
(1966)
Cong.Rec.
(remarks
also 112
savings
director of a bank or
and loan associa-
Rep.
concerning possible
Patman
agency abuse
extraordinary power,
tion is an
which can do
practice” provision).
of "unsafe or unsound
great harm to the individual affected and to his
system
institution and to the financial
as a
19. Seidman contends
may
various OTS officials
strictly
carefully
whole. It must be
limited and
him,
against
be biased
see Brief of Petitioner
guarded.
(explaining
Seidman at 11 n. 12
adversarial his-
Accordingly,
adopted
the committee
lan-
OTS),
tory
points
specific
but he
to no
facts
guage
imposes
which ...
require-
the further
tending
Ryan,
to show that Director
the decision-
practice
ment
the violation or
must be
maker, was biased.
involving personal dishonesty
part
“one
on the
of [the] director or officer.”
limitation,
opportuni-
With this
Seidman are institution-affiliated
and with the
ty given
judicial
parties.
1813(u)(l) (West
suspension
to seek
review of
See 12 U.S.C.A.
1989).
or removal orders ...
the committee conclud-
Banking
Approving
and Cur
intervention
the House Committee
under
(memoran
Cong.,
public
[FHLBB’s] “loss of
confidence” ra-
rency, 89th
2d Sess. 49-50
Horne) (citations
open-ended supervi-
tionale would result in
dum submitted
John
sion ....
omitted).
[FHLBB’s] rationale would
Thus,
generally
inter
courts
decide,
permit it to
public
not that the
has
preted
phrase
prac
“unsafe or unsound
lost confidence
[the bank’s] financial
concept
gives
which
tice” as a flexible
soundness,
public may
but that
lose
administering agency
ability
adapt
confidence in the fairness of the associa-
problems
changing
practices
business
tion’s contracts with its customers.
If the
banking industry.
regulatiоn of the
See
public’s
can act to
[FHLBB]
enforce the
Comptroller
Bank v.
Groos Nat’l
Cur
interpreting
standard of fairness in
con-
(5th Cir.1978) (“The
rency,
F.2d
tracts,
[FHLBB]
becomes the monitor
phrase
banking practice’
or unsound
‘unsafe
every activity
of the association in its
widely
regulatory
used in the
statutes and
proctor
public opinion.
role of
This
law,
purposes
one of the
of the
case
departs entirely
congressional
from the
clearly
pro
acts is
to commit the
concept
acting
preserve
the financial
gressive definition and
of such
eradication
integrity of its members.
practices
expertise
appropriate
to the
of the
(footnote omitted).
Id. at 264-65
regulatory agencies.”).
In Northwest National Bank the court
Among
specific
may
acts
upheld
Comptroller
Currency’s
constitute an unsafe and unsound
(“Comptroller’s”) conclusion that evidence
dividends,
“paying
disregarding
are
excessive
showing
adequate
failure to maintain an
loan
ability
repay,
a borrower’s
careless control
inadequate capital,
to loss reserve and
to-
*16
expenses,
advertising,
excessive
inade
gether
administration,
with deficient loan
es-
quate liquidity.”
Federal Sav. & Loan
Gulf
banking prac-
tablished unsafe or unsound
Ass’n,
Federal,
In
payment
bonuses to bank offi-
of excessive
imprudent
charges against Bailey.
acts OTS
cers).
They are:
Financial,
MCorp
Inc. v. Board
(a)
Gov
failing
to disclose Seidman’s interest
(5th Cir.1990),
ernors,
would to its own through complete absent Seidman’s with status; corporation’s separate it would drawal, Bailey obligated nevertheless had wasting holding compa amount to a of the might Crestmont to a it loan not be able to ny’s duty assets in violation of its to its Obligating make. one’s institution to trans shareholders.” Id. might illegal actions that is not accord “generally accepted We think at least one common ele with pru standards of Fin., Inc., banking ment of an prac operation.” MCorp unsafe or unsound dent See relating tice to health accepted institution F.2d at 862. After Levine the com letter, can be deduced from these cases and the mitment Crestmont either had to loan, legislative history. imprudent agreement The act must make the breach the to pose an place abnormal risk to the financial stabili make it or the loan with another insti ty banking regardless of the institution. position. This is the tution of Seidman’s Al out, legislative though, standard that the case law and as it turned Crestmont able was grounds upon by agreed ap- The first two relied the Di- that the Levine loan was not to be rector—a failure to disclose Seidman’s interest in FSA to the Senior Loan Committee and proved fully until Seidman disassociated himself Bailey’s Moreover, from FSA. reliance on the omission approval submitting of the loan without it to the Summary of Seidman's interest on the Credit Senior Loan Committee—were not material to misplaced. testimony sup- Undisputed is form Bailey's approving issuing act of the loan and ported Bailey’s entry claim that the form commitment letter. The record establishes that party’s referred to an affiliated interest in the all the members of the Loan Senior Committee supra borrower. See note 5. fully aware of Seidman’s interest and had loss, policies, imprudent, pose we did not an incident or while plаce the loan without present Bai- recognize that a risk was when abnormal risk Crestmont’s financial stabil- Obliging an in- ley the commitment. ity issued and therefore was not an or un- unsafe covering choose between fluctua- stitution to meaning sound within the of section rate, engaging in an 1818(b). tions Accordingly, grant Bailey’s we will binding breaching illegal transaction petition part for review and vacate the prudent. agreement is not pertaining Bailey. order Director’s alone, standing howev Imprudence Charges Against The VI. er, unsafe or is insufficient to constitute an practice. A cease and desist order unsound recognized Courts have that the designed prevent actions that if re is power to remove a bank officer is an extraor carry peated potential would serious dinary power carefully that should be exer single Although issuance of even this loss. cised in strict accordance with the law. Cf. po exposed to some commitment (5th Manges Camp, v. 100-01 loss, potential risk did not tential risk Cir.1978). Accordingly, might expect we begin approach abnormal risk involved sought the statute under which OTS Bank, National where the bank Northwest far more serious sanction of re exposed threat to financial to a serious permanent prohibi moval office stability by general its failure to monitor its participation industry, tion from in the thrift adequate adequately and to maintain loans 1818(e), requires U.S.C.A. elements ad capital. potential loss reserves justify ditional to those that the lesser sanc Bailey subjected Crestmont is rather which tion aof cease and desist order. We are not present Federal. Contin like that Gulf disappointed. By requiring part a three con ultimately gent, remote harms that could re junctive 1818(e)(1), Congress test in section to the insti loss[es]” sult in “minor financial imposed significant has additional conditions pose danger tution are insufficient deprived before a banker can be of his office proceedings. warrants cease and desist Gulf permanently banking. barred from Ass’n, F.2d at 264. Fed. Sav. & Loan Thus, agency regulating before an Though particularly onerous to re is impose institution can this ultimate adminis satisfy quire a loan officer to himself that the banker, trative sanction on it must show may legally make a loan before institution (1) by substantial evidence that: the banker issued, con the commitment is we cannot (2) act; an act has committed unlawful that the commitment authorized clude regulated on the has either adverse effect posed suсh an abnormal risk Crest depositors institution or its or confers a ben stability mont’s financial was threatened. (3) accompa the act efit on the actor and *18 by culpable Bailey’s approval of nied a state of mind.22 See Ob We hold (8th FDIC, v. Cir. the Levine loan and the commitment he is erstar 1993). in come in three varieties. sued on behalf of Crestmont violation of its The acts (i) 1818(e)(1) depository such insured institution or 22. The Ml text of section is: prob- or will business institution has suffered (1) appropriate ... Whenever the Federal damage; ably or other suffer financial loss banking agency determines that— (ii) depository of the insured in- the interest has, (A) any party institution-affiliated di- depositors or could be stitution's have been indirectly— rectly or prejudiced; or (i) violated— (iii) gain party or such has received financial (I) regulation: any law or ... violation, by other benefit reason such (ii) participated any engaged or in unsafe or breach; practice, and or any practice with in- unsound in connection violation, (C)such practice, or breach— depository sured institution or business insti- (i) part personal dishonesty on the involves tution; or party; act, of such or (iii) engaged any or omis- committed (ii) continuing disre- sion, demonstrates willM or or which constitutes a breach gard by party safety such for the or sound- fiduciary duty; party’s of such (B) violation, depository practice, institution or by ness of such insured reason of the or subpara- any business institution. breach described in clause of 1989). 1818(e)(1) (West (A)— § graph 12 U.S.C.A. subclasses, The effects also divide into three OTS contends Seidman acted in vio only culpable there are two kinds of lation regulation” “law or under section 1818(e)(1), mental states. Under section 1818(e)(l)(A)(i)(I) when he and Risko took acts, accompanied least one of the prohibited steps to secure Seidman’s release from his prohibited at least one of the three effects guarantee of FSA’s indebtedness to UJB. specified culpable and at least one of the two The ALJ concluded that Seidman violated 12 mind, states of must sub established § C.F.R. 563.43 in securing his release from stantial evidence on the whole record before guarantee.23 the UJB Section 563.43 made it regulatory properly can agency remove a improper savings for a to “[m]ake association person from office and ban him from the any any to ... party loan third on the securi banking or thrift industries. Id. ty property purchased of real any affili The Director separate рerson association, concluded five ated of such unless the charges warranting the sanction of removal property single-family was a dwelling owned prohibition proven against and occupied by Seid- person the affiliated as his (1) acting gain man: release from the UJB or principal her residence.” 12 C.F.R. (2) loan; failing notify 563.43(c)(1)(1991)(since § Crestmont’s Senior repealed).24 Seid Loan committee of his interest 563.43(c)(1) FSA and man argues section ap does not (3) the Boonton project; destroying material ply it expressly requires because consumma (4) during investigation; information giv- loan, tion of a granted Crestmont never ing misleading testimony in deposition; any prohibited" loan. agree We with Seidm (5) instructing a material witness to an.25 withhold evidence. We will examine the rec- ord as to each to see if the evidence relevant held, however, The Director also statutory each meets the requirements we 571.7, violated 12 C.F.R. just described. 1818(e)(l)(A)(i)(I)’s that violation met section requirement prohibited of a act because it A. Seidman’s Release From His “regulation.” violation Guarantee on the UJB Loan argues that section policy 571.7 is a state
1. Did
“Any
Seidman Violate
Law
ment,
regulation,
not a
and therefore
Regulation”
or
in Seeking the
violation of
it did not meet
section
Release?
1818(e)(l)(A)(i)(I)’s requirement.
Section
571.7
expressly
labeled a “Statement of
On the
charge,
begin
first
we
reads,
Policy” and
part:
relevant
particular
acts
described
section
1818(e)(1)(A). If Seidman’s effort to secure a
director, officer,
[E]aeh
or other affiliated
release from
the UJB
is person
savings
of a
association has a fun-
among the three kinds of acts section
duty
damental
to avoid placing himself or
1818(e)(1)(A)prohibits, we need not consider
position
creates,
herself
which
any of
particular
effects
which
to,
leads to or could lead
a conflict of
1818(e)(1)(B)specifies or
culpa
either of the
appearance
interest or
of a conflict of in-
1818(e)(1)(C)
ble states of mind section
de
terest.
...
scribes
act,
because the elements of
effect
571.7(b)
conjunctive. Oberstar,
(1993).
state of
mind are
12 C.F.R.
predeces-
OTS’s
sor,
931 571.1). 1975, pub § In FHLBB this dis- C.F.R. FIRREA does not remove ment APA, request 5 U.S.C.A. lished a for comment on a number of because the tinction 553(b)(A) (West 1977), requires ex- proposals more that had § conflict been 19, of notice and comment acting procedures adopted on November 1970. It included force 12,216, 18,038 of rules that promulgation Fed.Reg. section 571.7. See 35 policy. it does for statements (1975). of law than Nevertheless, section 571.7 contin person’s failure to follow the regulated A in appear ued to a section of C.F.R. entitled policy statement is not sane- guidance of a Policy.” Accordingly, “Statements of Seid- 1818(e)(l)(A)(i)(I) un- tionable under section argues wrong away per man it is to take shown that the failure to follow less it is also provision promulgat son’s livelihood under a statute, policy specific violated some rule ed, policy codified and described as a state regulation that has the force law: regulation ment rather than as a rule or general agreement having the force of law. are [C]ourts interpretive simply rules state what In Northwest National Bank the bank was agency administrative thinks the statute violating § charged with 12 C.F.R. 7.3025 means, only parties “remind” affected (1987). Bank, Northwest Nat’l 917 F.2d at contrast, existing duties. In a substan- The court concluded the rule was rule, legislative pursuant proper- tive or “clearly legislative pur- in nature it because law, ly delegated authority, has the force of ports require- to create new substantive imposes rights law or new and creates new It ments.” Id. at 1117. considered several or duties. factors, including the text of the rule and the Arts, v. Jerri’s Ceramic Inc. Consumer Prod. procedure agency promul- had used to (4th Comm., Safety 207 Cir. 874 F.2d it, gate deciding “interpre- whether it was (citations 1989) omitted); see also FLRA v. “legislative” in tive” or nature. Id. at 1116- (3d Navy, Dep’t 966 F.2d “interpretive” 17. The rule’s classification as Cir.1992) (in Bank, banc); Northwest Nat’l important dispositive not factor. at 1117. The United States Court F.2d Id. Appeals District of Columbia has for the observed: legislative rule the court Northwest general policy
A ... not statement of does materially National Bank considered is dif- finally binding norm. It is not 571.7, establish imposes ferent which no rights determinative of the issues or specific requirements. substantive More- agency which it is When the addressed. over, National Bank’s failure to Northwest situation, applies policy particular in a plainly follow 12 C.F.R. 7.3025 led to a it, prepared to defend and can- must Id. at 1116 violation of the statute itself. that the matter foreclosed not claim is (“The Comptroller found Northwest viola- prior policy statement. thereby regulation] and in viola- [the tion of 29.”). tion of U.S.C. v. Federal Sav. & Loan Ass’n Guardian (D.C.Cir.1978) (in- FSLIC, 589 F.2d addition, the text of section 571.7 does omitted). quotation and citation ternal support position. Section 571.7 OTS’s FHLBB issued section 571.7 as caution changed published since it was first has not against the risk that is added when an affili policy pro- has since as a statement. OTS person personal has a ated like Seidman the force of law mulgated regulations with savings stake a business transaction prohibiting specific conflicts of interest. considering, a risk inherent in institution if They would be redundant section 571.7’s self-dealing. generally First Nat’l Bank See general independently has the statement (5th Cir.1980). Smith, v. See, 563.40, §§ e.g., 12 C.F.R. force of law. *20 FHLBB announced section 571.7 in The first (1993). 563.41, 563.43 policy giving 1968 as a without interested Considering National Bank the Northwest any opportunity persons for comment. See 571.1(b), (codified (1968) 16,382 together, we hold section Fed.Reg. at 12 factors text, policy whose title and codification as a an “unsafe practice” or unsound embraces changed, just statement have never that— action, any action, or lack of which is con- statement, a policy regulation.27 not a Con- trary generally accepted standards of gress agencies regulate and the that lending prudent operation, possible the conse- specifically prohibited institutions have par- which, quences continued, of if would be statutes, ticular acts as conflicts of interest in abnormal damage risk loss or of to an regulations plainly rules and do have the institution, shareholders, its agen- or the Congress force of regulators law.28 and the administering cies the insurance funds. they have shown that know how to define Fin., Inc., MCorp (quotation F.2d at 862 specific gives conduct that illegal rise to an omitted). An practice unsafe or unsound has of sweeping conflict interest. think We the (1) (2) components: two imprudent act 571.7(b) language of section indicates it is no places an abnormal risk of financial loss policy more than a statement of that a di- damage or banking institution. institutiоn, See banking Seidman, of a rector like supra Part V. contends that guide OTS personal conduct, should use as a conduct in seeking a rule release from triggers not whose violation his UJB the severe 1818(e) penalty guarantee imposes. failing section According- inform the Board or ly, reject we the Senior Director’s conclusion Loan Committee of his interest 571.7(b)’s section Policy” requirements. “Statement of meets is a these “regulation or law” meaning within the OTS and equate the Director impru- 1818(e)(l)(A)(i)(I). section component dence of an unsafe or unsound practice with a fiduciary duty breach 2. Did Seidman Engage in an Unsafe care, of due “prudent once called the man or Unsound Seeking Practice rule” and now more often described as the Release? judgment” “business rule. See Revised Mod- Because Seidman did not act in Corporation (“RMBCA”) el Business Act of a regulation violation law or required by (1992). § 8.30 brief, comment In its OTS 1818(e)(l)(A)(i)(I) section when sought he prudent asserts operation “[t]he of Crest- release, we next by doing whether consider certainly mont requires that its directors and engaged so he in an or prac unsafe unsound comply officers regulations OTS con- 1818(e)(l)(A)(ii). under section tice Di The cerning conflicts of interest as well as Crest- summarily rector concluded that Seidman’s policy mont’s own governing Ap- conflicts.” in seeking conduct a release from the UJB pellee Brief at 31.29 informing without the Board or the Senior Loan Committee may While the same act be both an unsafe FSA, charge him, the second against consti unsound under section tuted an unsafe or practice. unsound OTS 1818(e)(l)(A)(ii) fiduciary breach of a urges us to affirm holding. this duty 1818(e)(l)(A)(iii), under section we hesi- previously, As stated tate to proxy make one a for the other.30 If 27. We need not and do not decide dealing, that FIRREA fiduciary duty a breach loyalty, give authority not expand does duty OTS the fiduciary duty of care. loyalty corporations officers of regulates owe their institutions from actual 30.Congress obviously thought concepts conflict, conflicts of appearances interest to enough require distinct separate specification we do hold that if it wishes to assert such Here, 1818(e)(1)(A). in section we need not con- authority its intent to do clearly so must be more sider overlap the details of between acts expressed than it is in section 571.7. are practices unsafe or unsound and those that fiduciary are duty breaches of apply because we Nothing policy about general statements different ap- tests to category determine which 571.1(b) particular nor would indicate plies any particular important, act. It is how- persons might who be affected them that ever, deciding imposing and in cases sanctions policy against apparent violation of the conflicts separately compare the act under consider- subject banning could them to an order them ation with category. all the elements of each profession they from the trade or work in. Director's many failure to do so is a source of FDIC, 29. OTS also problems relies on v. F.2d and much of the confusion Hoffman (9th Cir.1990), but that case dealt with self- case. *21 prohibited personal gain. Compare of prove to a violation of section effect OTS seeks 1818(e)(l)(A)(ii) 1818(e)(l)(A)(ii), satisfy § definition it must with U.S.C.A. id. 1818(e)(l)(B)(iii). practice. Converse- of an unsafe or unsound This record does not ly, prove if a violation of OTS wishes attempt show that Seidman’s to obtain relief 1818(e)(l)(A)(iii),it so must do under section guarantee from his and free Crestmont from fiduciary’s duty. a the standards that define prohibition against OTS’s end-user only present inquiry is whether the first Our development Boonton FSA’s created an concerning charge against his suc- damage of abnormal risk loss or to Crest- from his cessful efforts to obtain release mont. We therefore turn to section guarantee obligations to UJB was of FSA’s 1818(e)(l)(A)(iii). practice. an and unsound So consid- unsafe ered, attempt we conclude Seidman’s to se- Any Fiduciary 3. Did Seidman Violate and un- cure a release was not an unsafe Duty Seeking the Release? banking practice respect sound attempt In a final to demonstrate only placed Crestmont. OTS guaran that Seidman’s release from the UJB selecting position of between his business 1818(e)(1)(A) tee an “act” was under section banking compelled life but also life and his therefore one the three elements potentially deprive him to Crestmont of de- justify prohibition néeded to removal told Seidman he had to sirable loans. OTS order, argues that the OTS Director correct relinquish disengage his outside interests and ly concluded that Seidman’s efforts to secure obligations from the he had incurred himself self-dealing his release constituted and violat then, partner when he
while
FSA
fiduciary duty
loyalty
ed his
to Crestmont
so, charged him
un-
did
with an unsafe and
1818(e)(l)(A)(iii).31
under section
As a mem
practice.
effort
sound
Seidman’s successful
Crestmont,
ber of the board and an officer of
guarantеe
a release from his
secure
duty
loyalty
Seidman did owe
to Crest
potentially
giving
beneficial Crestmont
mont.
Section 8.42
RMBCA states:
it an added source of desirable loans. The
(a)
discretionary
An officer with
authori
support a conclusion that
record does not
ty
discharge
shall
his duties under that
attempts to extricate himself from
authority:
contrary
accept-
the UJB
practices
persons acting on
ed
for
(1)
faith;
good
behalf of Crestmont.
(2)
ordinarily pru-
with the care an
if
Even we were to conclude
position
person
dent
in a like
would ex-
release,
imprudently
seeking
behaved
circumstances;
ercise under similar
still have to
that his actions
OTS would
show
(3)
reasonably
in a manner he
be-
of financial
created an abnormal risk
loss
in the best interests of the
lieves
supra
Crestmont. See
Part V. Unable
corporation.
Crestmont,
identify any specific harm to
OTS
(1992).
RMBCA 8.42
Common law also
argues, “if directors are free to make choices
duty
loyalty
imposes on a director a
to the
they
for the institutions
control based on the
corporation
Fleishhacker v.
served. See
personal
result from their
benefit
would
(9th
Blum,
543,
Cir.),
cert.
risk that
choice there would be
inherent
denied,
665,
23, 85 L.Ed.
311 U.S.
61 S.Ct.
depositors
the interests of the
and the insti-
(1940).
duty
loyalty
includes a
personal
tution would take a back seat to the
Pep
duty to avoid conflicts of interest. See
Appellee App.
interest of the director.”
Litton,
295, 306, 310-11, 60
per v.
308 U.S.
again
recognize any
31. OTS
fails to
distinc-
(1939).
As Crestmont never granted any This record shows that property loan secured this what he did. whose Moreover, when obligation sale could reduce Seidman’s on we consider the whole rec- ord, must, exposure or UJB’s as we its loan to we see substantial evidence FSA, promise anyone nor did Seidman ever Seidman did not act as did to he benefit that Crestmont expense, would make such loans in himself at Crestmont’s but rather - exchange clearly for his release. OTS sus- because he wished to eliminate outside inter- supports 32. Additional evidence which good conclu- shows that the release was business for UJB, recognition sion that UJB's that Crestmont could Seidman and Crestmont because it in- lawfully supply pool potential tight end-user on the loans Boon- creased the lenders in a project guar- gave ton unless UJB opportunity released Seidman's market and Crestmont an approval acquire good antee motivated its of the release. It loans on their merits. 1818(e)(l)(A)(i)(I) or constitute conflict potential for have a could ests that or unsound” under section “unsafe Corporate law interests.33 Crestmont’s *23 (1)(A)(ii) 1818(e) fiduciary duty or a breach of loyalty not because duty imposes a of 1818(e)(l)(A)(iii). To the ex- under section party a third improper to appears conflict relied on Seidmaris conduct tent the Director opposing of “‘prevent[] a conflict to seeking guarantee from his of a release fiduciaries, whose minds interest in the support to to UJB FSA’s indebtedness of their solely the benefit act duty it is to ” prohibition, the Di- of removal and order Molinaro, 889 v. FSLIC beneficiaries.’ rector erred. Cir.1989) (9th (quoting Restate- 904 F.2d (1937)) comment c Restitution ment of Failure to Remind B. Seidman’s added). shows Seid- This record (emphasis Board or Senior Loan Crestmont’s conflict, not because to avoid man acted His Interest in FSA Committee of it. Next, Di consider whether the we every appearance not think We do concluding that in Seidmaris rector erred of removal justifies the sanction wrongdoing Board or Sen to remind Crestmont’s failure Rather, a believe such we prohibition. in of his interest FSA ior Loan Committee evi- require some should sanction drastic 1818(e)(1)(A) act under section constitutes an from or misconduct evidence of actual dence support an order оf removal that could person acquainted a reasonable which had record shows Seidman prohibition. The miscon- there conclude was could facts in interest the Boonton already his made Here, any loan never made Crestmont duct. through on the con project disclosure known project, and Seid- on the FSA to end-user The flict he filed with Crestmont. forms any considering loans stop to man told however, Director, thought had to Seidman before OTS had an interest in which Seidman specific in to the bring his interest FSA did so as investigation. Seidman began its Board or Senior Crestmont’s attention of persuade could realized he not soon he as processing began before Loan Committee matter. guarantee did not his OTS that OTS proposed loan to Levine. Neither attempts persuade to OTS earlier Seidmaris any general regu points to nor the Director improper. Viewed contrary were not to the any policy imposes lation Crestmont whole, contains think this we record gen specific than his duty more on Seidman acted that Seidman substantial evidence in duty disclose his interest FSA eral Crestmont, just the interests of further any not cite law or does Crestmont.34 OTS obtain a own, attempted to when he his requiring Seidman remind regulation his guarantee, and therefore from his release what he Loan Committee Board or Senior a breach of the not constitute did actions them, OTS nor does already had disclosed loyalty in section fiduciary duty of contained repeat disclo argue failure Seidmaris 1818(e)(l)(A)(iii). prac or unsound an unsafe sure constitutes technically were if the Director summary, conduct tice. Even In we hold Seidmaris finding that breached correct from the UJB seeking a release spe- fiduciary duty when he failed of candor regulation” under any “law or violate did not regulations than trying to meet OTS rather entirely was different if would be situation The his own secretly committed a release from trying that Seidman had to seek had shown OTS exchange risky expense. liability to underwrite loans potential Crestmont at Crestmont's release, personal no evidence but there is for his any end-user fi- loan or other that nancing Levine encompassed fiduciary's duty of candor is A34. risky more considered was duty loyalty. candor duty within the grant, any might nor other loan Crestmont than all “corporate [to] requires fiduciaries 'disclose promised to look that Seidman evidence is there favorably corporate deci- relevant matеrial information de- loan. OTS Boonton Until personal they may derive which sions from property devel- made on loans could not be cided " Bush, AP 91-16 at OTS benefit.’ re guar- has oped anteed, a thrift director with loans which at DD LEXIS 1991 OTS WL 540753 seeking only to withdraw Inc., Macmillan, (quoting Acquisition Co. v. Mills promise against partner as a from FSA indemnity (Del.1989)). 559 A.2d acquiring partner who was This record interest. shows Seidman’s cifieally to remind the Senior Loan mitted an Commit- unsafe and unsound tee of his each interest FSA time the attempts these to obstruct the investi- Committee, Levine loan came before gation. breach would not be material because the plainly
record
that all
shows
three of the
Committee,
members of the
Loan
Senior
Bai-
Seidman benefitted from his
efforts
ley,
McClellan,35
arguably
Seidman and
depriving the OTS of rehable and material
fully aware of
FSA.36
evidence, thwarting the OTS enforcement
Therefore, the Director erred when he decid-
*24
hampering
action and
prompt
the
resolu-
fiduciary duty
ed Seidman
his
breached
tion of
self-dealing charges.
the
Seidman
specifically
candor
reminding
not
the
personal dishonesty by
demonstrated
giv-
Board or the
Loan Committee
Senior
about
ing misleading testimony
omitting
ma-
FSA,
charge
his interest
and this second
during
terial facts
an
investigation
OTS
grounds
cannot be
a removal
prohibi-
for
examination;
destroying evidence;
1818(e)(l)(A)(iii).
tion order under section
and soliciting another
give
witness to
false
testimony
destroy
material evidence.
Attempt
C.
Seidman’s
Hinder
App.
Seidman
at 119-20. While the Director
Investigation
the OTS
directly
did not
relate his conclusions to the
Finally,
must
we
consider whether
statutory requirements,
is clear
he con-
during
actions
Seidman’s
the
pendency
the
cluded that Seidman’s
during
conduct
the
investigation support
OTS
pro
removal and
investigation constituted an unsafe or un-
hibition. The Director found Seidman lied in
practice
sound
under
section
deposition
13, 1991,
September
his
de
1818(e)(l)(A)(ii)37and that Seidman satisfied
stroyed material
and encouraged
evidence
the
component
effect
section
testify falsely
Risko to
about events sur
1818(e)(l)(B)(iii) by receiving personal
ben-
rounding
draft of
the
Risko’s letter to UJB.
efit.
The Director stated:
agree
We
right
The OTS has a
the
Director that hin
accurate and
dering
investigation
reliable
an OTS
information
the
is an
course of its
unsafe or
investigations.
examinations and
unsound
as that
Seid-
term has come to be
integrity,
man’s lack of
used
the
by
banking industry.
evidenced
his
Section
1818(e)(1)(A)
misleading testimony,
attempts
cаn be
to de-
satisfied
evidence
stroy
showing
evidence
attempts
and his
solicit
conduct with
which an affiliated
misleading
false and
testimony, poses
person
as a
like Seidman
charged
is
within
falls
consequence
1818(e)(l)(A)(ii)’s
natural
an abnormal
section
risk of
proscription of un
damage
institution,
loss or
very
safe
practices
or unsound
because it “is con
essence of an
or
practice.
trary
unsafe
unsound
generally
accepted
pru
standards of
The Director concludes that
com-
operation”
dent
possible
and “the
conse-
ALJ,
35. Before
$500,000,
McClellan testified that as
exceed
and the evidence on this record
President of
he
Crestmont would review conflict
granted
indicates that Crestmont
not have
would
of interest disclosure forms filed
relevant
completed
if
loan Seidman had not
his with-
personnel.
undisputed
It is further
drawal
from FSA. Crestmont’s President
that Seidman had disclosed his FSA
McClellan testified
understanding
that it
the most recent two conflict of interest forms
in other similar situations
would
prior
Thus,
filed
to the Levine loan.
McClellan
withdraw his interest before Crestmont made
imputed knowledge
had
of Seidman's interest in
Bailey App.
loans. See
at 191. While
FSA.
should
issued a commitment letter be-
completed
fore Seidman
his formal withdrawal
why
36. There is
spe-
another reason
a renewed
FSA,
there
showing
is no evidence
cific disclosure to the Senior Loan Committee
anticipated Bailey’s premature
action.
was not
grant
material Crestmont's decision to
deny
or
the Levine loan. Crestmont’s internal
regulations
require
do not
37.The Director
the Senior
also
Loan Com-
concluded that Seidman's
mittee
applications
to review
regulation
violated a
loans of less
conduct
law or
under sec-
$500,000
they
1818(e)(l)(A)(i)(I).
than
are
unless
for loans
tion
question
to “affili-
We do not
parties.”
ated
application
The Levine
did not
conclusion.
damage to
abnormal risk of
continued,
pose an
act],
be would
if
would
quences
[the
attempt
Accordingly,
...
hold that an
damage to
we
OTS.
or loss
risk
abnormal
an
administering
investigation
insurance
constitutes
an OTS
to hinder
agenc[y]
Ass’n,
Loan
satisfying
Sav. &
practice,”
Federal
thus
or unsound
fund[ ].”
“unsafe
Gulf
omitted);
also
1818(e)(1)(A).38
see
(quotation
at 264
F.2d
requirement
the act
attempt
V. We believe
supra Part
attempts to
conclusion
Our
an act.
investigation is such
an OTS
obstruct
investigation constitute
the OTS
obstruct
preserving
charged with
statutorily
OTS
end our section
prohibited act does not
system.
thrift
integrity of the
financial
1818(e)
have a
must still
inquiry.
act
(West
id.
Supp.1994);
1462a
12 U.S.C.A.
See
culpable
be-
-with a
intent
prohibited effect
1463(a).
responsibility,
To meet that
of a removal
the severe sanction
fore
investigate.
12 C.F.R.
See
power to
has the
Oberstar,
may issue. See
prohibition order
(1993).
attempts to
party
Where
509.16
1818(e)(l)(C)’s cul-
entered gov- 1818(b), that section U.S.C.A. reasons, Bailey’s grant we will these For 1818(e), does statute, unlike erning part petition for review reverse suspen- preliminary entry of a not authorize commanding him order Director’s 1818(b) 12 U.S.C.A. order. See sion grant will also Seid- We cease and desist. the Director’s (e). therefore vacate We will portion review of petition for man’s his office from suspending Seidman order removing him from Director’s order participating Crest- and chairman position director activities. mont’s business Crestmont, it and remand reverse board for further case to Director VIII.Summary opinion. Fi- *27 with this proceedings consistent petition sum, grant Seidman’s we In will Di- part we will vacate nally, Director’s order part of of that the for review suspending temporarily Seid- rector’s order of Crest- removing director and his office Crestmont man from participating him from prohibiting mont and business activi- participating Crestmont’s industry reverse and in the ties. Di- the because part of the order particular attempts that Seidman’s conclusion rector’s dissenting: STAPLETON, Judge, Circuit investigation conferred to obstruct OTS’s jurisdiction to review have agree I that we by sub- supported not upon him is benefit Bailey and against order and the cease desist is erro- this record and on evidence stantial now this issue is While out case. to make its provisions of notice We believe 40. the applicable moot, the put note that we 1818(b)(1) nevertheless been satisfied. to an Director alleged expressly to constitute the authorize regulations facts notice of the on by the notice the any aspect thereof" to or unsound unsafe the "action remand 1818(e)(4). pursuant (1993). to section charges 509.40(c)(2) issued the § In 12 C.F.R. ALJ. 1818(b)(1) and Compare us, 12 U.S.C.A. Director determined the now before cases 1818(e)(4). U.S.C.A. incorrectly assigned the agency burden the mitigation and production the assessment on tempo Director's vacate we will the 41. Because Exercising Bailey. penalties and to Seidman order, challenge to rary suspension Seidman’s remand, authority the Director regulatory declining jurisdiction at order district court’s the AU. to the penalty back issues sent the therefore This resolu is moot. Docket 92-5392 No. our permitted similar remands courts have Other Bailey’s chal and renders Seidman’s also tion lenge production the burden questions about when deter remand to propriety of See, v. e.g., present. proof Dazzio Bailey penalties moot. Seidman civil mine 1992); (5th v. FDIC, Merritt Cir. ALJ argued Director’s remand both 1992). (2d States, Cir. F.2d United concerning the assessment findings further unfairly gave a second chance penalties civil prohibition the removal and against order acting favorably on requests. those my Seidman. colleagues, Unlike I would was also approved found to have an addition deny petitions both for review. As the Di- to his representing draft that “Crestmont beginning rector noted at the opinion, of his would willing to consider financing future by “[u]se institutions insiders for their own [of such purchasers], qualified assuming buy- benefit has greatest one of been threats ers.” App. 41. dispatched The letter was to the safe operation and sound savings May 31, 1991. exposed associations and has the Federal That the message intended was heard and deposit funds significant insurance risks.” understood is evidenced the internal docu- App. Fortunately, the risk created generated by ments response UJB in conduct of Seidman and in this request. The memo that went to matter did result in actual loss their UJB’s Real Estate Management Asset Com- savings association or to the deposit Federal mittee stated: insurance fortuity, funds. however, That UJB approached has been by Lawrence does not mandate that we overturn the or- Seidman, B. principal guarantor ders before us. Street, Fulton requesting the release of his The Director found that Seidman had en- personal guarantee. Mr. Seidman is gaged in undisclosed negotiations with UJB Chairman of the Board of Crestmont Fed- to secure release of a personal substantial Savings Loan, eral the institution pro- obligation by representing to UJB Crest- viding end loan takeouts of our warehouse willingness mont’s to make end-user loans to loan. Mr. Seidman has conflict of interest financially qualified purchasers aof UJB in approving these takeouts serving while debtor and had later obstructed the OTS’s guarantor as UJB’s and the project’s prin- investigation of the matter. The Director cipal. is currently reviewing concluded that the self-dealing ob- $1.7MM end financing loan requests in provided structive conduct independent bases illiquid market. order to reduce our for a prohibition removal and order. With exposure in project, it becomes neces- respect Bailey, the Director concluded sary to release Mr. only Seidman. The that he had engaged in an unsafe and un- other alternative would provide be to sound banking practice by causing a commit- end loan at roughly ourselves ment to be made on a loan to a partnership twice the dollar already UJB has out to in which Seidman had a financial interest Borrowers without disclosing the transaction to the Board of Directors or Senior Loan Com- Although Mr. Seidman shows a mittee. I net will examine each charge in turn. *28 $1.4MM, worth of liquidity his only addition, $116M. he recently has con- I. equity tributed project, to the further de- The ALJ and the Director found that Seid- pleting his liquidity. generate He does man had arranged with Poоle & pur- toCo. income of p.a. $225M as CEO of Crest- request sue a by him that UJB release him mont; however, can he be more valuable from his $4.45 million personal guarantee. repayment the of our loan as a source of They further found that Seidman drafted end loan financing. letter for Risko to behalf, send on his along App. 42. UJB’s Executive Vice President with a brief letter of his own asking for the Eberhardt initialed this memorandum and release, pointing out that Seidman was the “Agree. added: End loan financing has Crestmont, CEO of that Crestmont was en- been critical to recent sales success.” tertaining requests for million pro- $1.7 from spective purchasers of property from Fulton Eberhardt testified that there was not a Street (“FSA”), Associates a developer fi- broad market for financing industrial condo- by UJB, nanced and that personal Seidman’s minium projects and that Crestmont was one guarantee created a conflict of prob- of the few willing institutions provide fi- lem which would foreclose Crestmont nancing from potential purchasers of FSA’s in- Eber- Risko Robert from James letter site. Boonton at the condominiums dustrial if 31, you and ask hardt, May dated agreed of the Committee members The other letter. seeing that you recall was and Seidman views Eberhardt’s with would UJB that on June notified that I re- letter is the This A. Yes. guarantee. release thinks he that Risko Mr. to before ferred Mr. Eber- Board it to day he the sent advise Crestmont’s sent me not did was that he President hardt. or its Directors or of his seeking a release where is the letter Q. Okay. And that trading Crest- he release pursuing secretary you had said thought your you financing. loan end provide ability to mont’s any prob- you didn’t it and that read con- examiner an OTS June On it? lems with saw at Crestmont examination ducting an Right. A. in Risko’s sent letter the draft page first reviewing letter? you recall Q. Do immediately commenced to UJB. name deposi- investigation a formal A. No. concern- questioned When was taken. tion Now, Mr. Risko did Okay. how Q. forth set arguments ing the source you Did ever those reasons? up with come release, grant of favoring a letter that, all, him, fact first with discuss testimony: following gave the letter for you give me why don’t Risko Mr. with you discuss Q. Did second. would write? he what fact that him the with you discuss Did I saw it. say we discussed I won’t A. as Chairman position your letter, but— may make Savings & Loan Federal he the letter before you see Q. Did im- purchasers condo of certain Eberhardt? it to Mr. sent in Ful- partner you also if were possible day to me he sent thinks A. He ton Street? him and secretary called it, my sent he I don’t okay, but it was I said No. told him A. it, may have. I seeing
recall with Mr. you Okay. Did discuss Q. Okay. Q. finance inability to fact that the Risko sorry. really wasn’t A. I the United users, serve —I’m does end posi- him what the devel- that of position or you discuss Q. Jersey Did Bank’s to seek UJB take with you would oper? tion guarantee? your personal
release discussion I had a Risko and Mr. A. A. No. discus- had that times. three We or two typical itWas he know? Q. did How Bob Eber- Even sion, I before. like said nature of this letters to write him George or Bob hardt, either who stated you? discussing it with without Stackhouse, if there Rinneman backwards, they for- to be felt details users knew the end A. He *29 deal the them they knew send down. He should upside qualified, that ward intimate- make likely He was would I UJB UJB, than better and most much did./ the loan I was end do those transaction. in this ly involved effort considerate just finan- the I was I guy. financing. mean outside noth- almost I knew guy in this deal. cial of at one discussed So, was that I mean the He knew this transaction. ing about Mr. if Risko know meetings. I don’t the iton stayed He I did. than better tenants not. or the conversation part of in that was I did. than better much
App. 44-46. Director noted, and the the ALJ have As I sorry. am Risko —I you ask Mr. Q. Did Seid- that support, found, ample record with 7, a which you OTS No. me show Let 942
man was the author
all
of
concluding
the
institution,
shareholders,
its
or the agen-
sentence of the Risko letter and that he had
cies administering the insurance funds.
approved the
of
addition
sentence.
MCorp Fin., Inc. v.
Governors,
Bd.
900
of
acknowledging
While
that Seidman had not
(5th Cir.1990)
F.2d
(quoting from
been
questions
asked direct
deposition
Cong.Rec.
(1966)),
aff'd
part,
authorship
about the
letter,
of the
both the
rev’d
part
grounds,
other
Board of
ALJ
the Director found
quot-
the above
Fin.,
Governors v. MCorp
Inc.,
502 U.S.
ed testimony to be “intentionally misleading”
(1991).
S.Ct.
During the more serious than remainder investigation, consequences of a (1) breach of Seidman was found to contract in asked Risko regular course of the bank’s another principal of business. Poole On & Co. to de- hand, the other stroy (2) seems documents, relevant clear from requested Ris- above-quoted legislative history ko to make false the rele statements and avoid full vant “risk” is not (3) disclosure occasioned personally destroyed mate- specific engaged conduct in in particular rial evidence in this a fit rage. case, but rather the risk that would be occa apparent It is from me the text of the sioned similar conduct were “continued” if Congress statute that intended courts to de- as way doing business. fer agency’s determination of what con- The record reflects that the market for stitutes an “unsafe and practice”.1 unsound end-user loans for industrial condominiums my As colleagues acknowledge, Seidman’s was thin. It further reflects that Boonton efforts to obstruct investigation of the project experienced had difficulties, financial regulating agency undeniably constituted an that few commercial lenders were willing to “unsafe and practice.”2 unsound I Since undertake end-user financing for that pro- say cannot the Director arbitrary was or ject, UJB, and the Boonton’s principal debt capricious in similarly characterizing Seid- fmancer, was concerned about getting its man’s negotiations secret UJB, I would money back. Crestmont had applica- loan sustain the conclusion of the Director that tions a substantial amount of end-user Seidman’s conduct 1818(e)(1)(A) satisfied financing prospective purchasers of in two ways. different Boonton properties. It had previously legislative history engaged such provides Act and it was faced the following general insight with a into what decision on whether it Con- was in the gress meant bank’s “unsafe best unsound” to extend credit under practice: these circumstances. Seidman’s was very influential voice Crestmont’s decision mak- [A]n “unsafe or practice” unsound em- ing process on such matters. action,
braces action, lack of which is contrary generally accepted standards It against background that Seid- prudent operation, possible conse- man approached UJB seeking release of his quences which, continued, if would without informing his fellow offi- abnormal risk of or damage loss to an cers and directors. To secure release, 1. As the noted court in Groos Nat'l Bank v. expertise tices to the appropriate regula- Comptroller Currency, (5th tory agencies. Cir.1978): *30 My colleagues do acknowledge not that Seid- phrase [t]he "unsafe banking prac- or unsound deposition man's testimony constituted "an un- widely tice” is used regulatory the statutes safe practice" and unsound apparently because law, and in case and of purposes one the of they the do not materially find it misleading. As I clearly acts is to progres- commit the explain hereafter applying 1818(e)(1)(B), I sive definition and prac- eradication of such disagree. an abnormal hold benefit would personal for dis- to be caused and drafted, approved, he the bank. to damage loss or risk of clearly not It was letter. Risko the patched, to the Board ALJ the for unreasonable 1818(e)(1)(B), I would Turning to Section effort a successful as this understand again. once conclusions the Director’s sustain provide ability to bank’s the to use Seidman otherwise, Di- the contends Seidman While per- to secure financing in order Boonton concluding that justified clearly was rector sure, testified Seidman To be benefit. sonal of release his from the benefitted Seidman to by his desire motivated was his letter that also he I believe was guarantee. million $4.5 he loans to make position ain put Crestmont from benefitted that Seidman to find entitled of view point its from desirable investiga- thought during were the tactics his obstructive amade the Director fortuitously, nor that, the ALJ Seid- agree neither I tion. While not did subjective motivation to su- this his efforts finding from that not benefit man did Crestmont, evidence, as destroy that may be thus perjury It born exist. deposition misleading materially circumstances Seidman, other under his leaves as well Director, the of release the testimony. the In words from benefitted might have by de- efforts his reli- benefitted from But “Seidman Seidman’s guarantee. Seidman’s evi- and material of reliable the OTS priving that the fact ignores motivation his on ance action enforcement dence, thwarting the OTS rep- the his release disclose to he failed of the resolution prompt the hampering will- to Crestmont’s he made resentation App. 120. charges.” self-dealing financing pur- to end-user provide ingness to finan- were who property Boonton chasers appar- colleagues’ my with agree I do not cially qualified. testimony misleading before position ent cannot agency regulatory investigating an no made true that it is While practice” unsound “unsafe and an constitute on behalf binding commitment legally Accordingly, I have perjurious. it is unless seeking the re- in the course the examiners failure of difficulty the with no not was it guarantee, million his $4.5 lease can I questions. Nor specific more to ask Director for the capricious arbitrary and tes- that Seidman’s colleagues my agree with like Seid- that communications recognize misleading. As I materially not timony was responsive actions letter and Risko man’s ac- not did transcript, Seidman the read significant would of UJB like those source the he the knowledge that was mаking at the affecting decision for potential and, letter Risko the reflected strategy increased greatly bank, that was potential to be- the examiner indeed, led purposefully activities. his disclose failure to by Seidman’s deposi- of the the time At not. he was lieve me, to unrealistic, believe it seems is not It know that not tion, did agency in Seidman’s judgment of someone that fact strategy and of that author was the Boonton undertake on whether position investigation into an clearly material influenced, if not be would end-user on his secretly traded had whether Nor, I controlled, by his release. altogether a release secure the bank influence fail- unrealistic, given believe, Seidman’s guarantee. personal his transaction release to reveal ure either 1818(e)(1)(C). Based I Finally, turn disqualify himself or to co-fiduciaries deposition, the Seidman my reading on of Boonton’s in discussions participating in con- justified were Director ALJ and perceive Director to for the financing, involved conduct Seidman’s cluding that mak- decision the bank’s risk that abnormal meaning of dishonesty” within “personal financing would regarding ing process justi- they (i). believe I also subsection substantially skewed. undisclosed finding that fied in a “will- demonstrated acted UJB negotiations short, think Director I do sound- safety and concluding disregard ful ... capriciously arbitrarily or meaning of within bank trading ness” undisclosed continuing practice of (ii). subsection influence corporate chief executive’s *31 is a word “Willful” that has mean- deposit different $2,000, check for which was deposited ing contexts, in different and the by courts have Crestmont. yet not defined init context subsection Under Crestmont’s internal operating (ii). precise Whatever the may definition rules, any loan transaction in which an officer be, however, turn out to I am satisfied that director Crestmont an had interest had disregard” “willful requirement of sub- to be submitted to the Senior Loan Commit- (ii) is met in case. The undis- approval. tee for Bailey, Seidman, and negotiations closed with by UJB found Crestmont’s then president, Mr. McClellan Director to be an unsafe and prac- unsound constituted the Senior Loan Committee. tice were intentional and deliberate. That The bank’s commitments fi- Levine subjective Seidman has a appreciation of the nancing were made without approval wrongfulness of his conduct and of the risk the Senior Loan Committee. Neither Mr. poses conduct kind that for a can bank McClellan nor anyone else on Crestmont’s reasonably be inferred from the fact that he Board of Directors were informed before tried to cover up his conduct when the inves- these commitments were made that Levine tigation commenced. financing wished purchase for a of property
from a partnership which Seidman had a II. financial interest.3 Bailey asked Seidman Bailey’s partners Mr. case and his is a on sympathetic more three one, occasions about the but it fact that relatively seems clear Seidman to me that had an interest in the transaction Director did not Levine his abuse discretion in wished to finance. occasion, On each issuing a he cease and was desist order directing advised that Seidman “getting was Bailey’s that out” of conduct respect with to the FSA Bailey’s and was understanding Levine loan application repeated. not be Levine actually wouldn’t given any be money Steven applied Levine to Crestmont in De- unless and until Seidman was “out.” As I of 1990 cember financing end-user for the noted, get did not all way purchase of a commercial condominium at “out” until UJB released his million $4.45 project. Boonton The Project Boonton guarantee at point some after June 1991. FSA, by was owned a partnership in which Indeed, when the made, commitments were Bailey knew Seidman general was a partner. partners and his attempting renegotiate financing FSA’s with UJB and A mortgage commitment on the Levine Seidman’s participation was by understood application was issued Crestmont on all to necessary to reaching agreement 19, 1991, March April 12, modified on on reorganization. UJB Agreement reason, 1991. For some Levine and FSA did May reached on and it was on not purchase consummate the time, at that day signed guarantee. and the commitment was not timely accept- Thus, at the time of each of the three bank ed. Negotiations continued, however, and a commitments made to Levine with Bailey’s contract purchase, for the price for the approval, Seidman had an interest in the $466,680,was entered May 10, into on 1991. transaction Levine intended to finance. A superseding commitment letter was issued May 19, through Bai- Bailey’s understanding that Levine would ley, committing to $375,000. a loan of get money no until Seidman was “out” of purchaser accepted the commitment letter FSA does not mean the Director erred in after its expiration date, with delivery of a finding an “unsafe practice” and unsound true, stress, It my colleagues concluded, that Seidman support, with record that because of had disclosed his interest in FSA on the conflict Bailey's failure to submit application the Levine of interest forms he had prior filed with the bank Committee, to the Senior Loan McClellan was approval to the Levine and that exposed alerting communication him McClellan testified he reviewed those forms from time to time. But the ALJ and to the application fact Levine’s related to a purchase the Director FSA. *32 of Conflicts desist order. and issuing a cease CHAPTER, ASSOCIATED poten- KEYSTONE because important are interest CONTRACTORS, AND BUILDERS undermining an institution’s for they hold tial members, of its representation INC., in and Seidman process. Here making decision to commit the decisions Bailey made v. a conflict- had when to Levine bank capacity FOLEY, official in his P. Thomas Bailey’s and Seidman’s when and ing Industry Secretary and of Labor being influ- susceptible were judgments Pennsylvania. the Commonwealth for That conflicting interest. by that enced Building Bailey’s conduct and Pennsylvania makes State fact crucial the Di- Trades Council practice” Construction unsound and “unsafe an Court). (Amicus obviously in District Bailey and eyes. Seidman rector’s applica- loan Levine’s to submit plans no had Appellant Foley, P. Thomas anyone Committee Loan to the Senior tion 93-7547. No. For financing was issued. before else transpired worse, had if events or for better Builders Chapter, Associated Keystone in the anticipated and Inc., representation as Seidman Contractors, and would, would the bank they of 1991 No. 93- Spring members, Appellant its on the loan based a substantial made Bailey exercised and judgment OF COMPANY TELEPHONE BELL very fortunes personal when PENNSYLVANIA; Communications FSA. to those tied still much AFL-CIO, District America, Workers loans prohibited policy loan Crestmont’s the manner approved being v. pre- Levine Bailey approved capaci FOLEY; official in his P. Thomas ap- continuing cisely because Industry Secretary of Labor ty as pose would manner in that loans proving Pennsylvania; the Commonwealth for stability of the financial to the risk abnormal Kamber; Rich Frayda Davis; R. James Director fault the unwilling to I am bank. Martz; Mickens. H. John ard W. Crestmont’s conclusion reaching the same its it established when Building did Con management Pennsylvania State Council, AFL-CIO rules. Trades struction Court). (Amicus in District III. Fray Davis; Foley; R. James P. Thomas Martz; John Kamber; Richard W. da of Seidman petitions deny the I would Mickens, Appellants. H. Bailey for review. 93-7548. 93-7547, 93-7573 Nos. Appeals, Court States
United Circuit. Third 13, 1994. April Argued 22, 1994. Sept. Decided 19, 1994. Oct. Amended As