169 F.3d 110 (2nd Cir. 1999), 98-6101, Board of Governors of Federal Reserve System v. Pharaon

Docket Nº:Docket Nos. 98-6101(L), 98-6121(CON).
Citation:169 F.3d 110
Party Name:BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Plaintiff-Appellant-CrossAppellee, v. Ghaith R. PHARAON, Defendant-Appellee-CrossAppellant, Alanwood Anstalt, as Trustee of the Brookpark Trust, and on behalf of the named beneficiaries of the Brookpark Trust, Intervenor-Defendant-Appellee.
Case Date:February 24, 1999
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 110

169 F.3d 110 (2nd Cir. 1999)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

Plaintiff-Appellant-CrossAppellee,

v.

Ghaith R. PHARAON, Defendant-Appellee-CrossAppellant,

Alanwood Anstalt, as Trustee of the Brookpark Trust, and on

behalf of the named beneficiaries of the Brookpark

Trust, Intervenor-Defendant-Appellee.

Docket Nos. 98-6101(L), 98-6121(CON).

United States Court of Appeals, Second Circuit

February 24, 1999

Heard Oct. 19, 1998.

Page 111

Thomas C. Baxter, Jr., New York, N.Y. (Shari D. Leventhal, Federal Reserve Bank of New York, New York, N.Y.; James V. Mattingly, Jr., Richard M. Ashton, Richard A. Small, Federal Reserve System, Wash., D.C., on the brief), for plaintiff-appellant-cross-appellee.

Richard F. Lawler, New York, N.Y. (Philip M. Smith, John C. Canoni, Whitman Breed Abbott & Morgan, New York, N.Y., on the brief), for defendant-appellee-cross-appellant.

Before: NEWMAN and JACOBS, Circuit Judges and TSOUCALAS, [*] Judge.

JON O. NEWMAN, Circuit Judge:

This appeal presents two issues concerning a civil penalty levied by the Board of Governors of the Federal Reserve System ("the Board"). The first is whether the Board is entitled to the ten percent surcharge on the penalty authorized by the Federal Debt Collection Procedures Act ("FDCP Act"), 28 U.S.C. §§ 3001-3308 (1994), in certain actions brought by the United States to recover debts. The second is whether the Board is entitled to an award of interest on the penalty, accruing from the date by which the Board's order directs payment of the penalty through the date a judgment enforcing that order is entered.

These issues arise on an appeal by the Board and a cross-appeal by Ghaith R.

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Pharaon from a partial final judgment of the United States District Court for the Southern District of New York (Harold Baer, Jr., Judge), enforcing an order previously affirmed by the United States Court of Appeals for the District of Columbia. After granting the Board's motion for summary judgment enforcing a final agency order assessing a $37 million civil penalty against Pharaon for his violation of federal laws governing bank holding companies, the District Court imposed a ten percent surcharge on the penalty pursuant to section 3011 of the FDCP Act, but denied the Board's motion for an award of interest on the penalty. See Board of Governors of the Federal Reserve v. Pharaon, No. 91-6250, 1998 WL 122593 (S.D.N.Y. March 18, 1998). The Board appeals from the denial of interest, and Pharaon cross-appeals from the award of a surcharge. We affirm the District Court's imposition of a surcharge, but reverse the denial of interest.

Background

This case arises out of Pharaon's involvement with the ill-fated Bank of Credit and Commerce International ("BCCI"), of which he was a major shareholder. On September 13, 1991, the Board filed a Notice of Assessment, alleging violations of sections 3(a) and 5(c) of the Bank Holding Company Act, 12 U.S.C. §§ 1842(a)(1), 1844(c), and assessing a civil penalty of $37 million against Pharaon. Pharaon was charged with participating in a scheme whereby the BCCI, using Pharaon as a front man, acquired control of Independence Bank in Encino, California, without the requisite prior approval of the Board.

Concurrently with the filing of its administrative charges, the Board obtained from the District Court a temporary restraining order ("TRO"), preventing Pharaon from removing or dissipating his assets in the United States during the pendency of the Board's proceeding, pursuant to the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(i)(4), and the FDCP Act. See Board of Governors of the Federal Reserve System v. Pharaon, 140 F.R.D. 634, 635 (S.D.N.Y.1991) (noting that TRO was extended on consent). Subsequently, Pharaon was indicted for criminal violations of federal banking laws; since November 1991, he has been a fugitive.

Despite his fugitive status, Pharaon promptly answered the Board's Notice of Assessment through counsel and requested a hearing on the charges. An adversarial hearing lasting nineteen days was held before an administrative law judge ("ALJ") in the fall of 1995. Following that hearing, the Board adopted the ALJ's recommended decision and issued a Final Order on January 31, 1997. In the Final Order, the Board assessed a $37 million civil penalty and ordered payment by March 3, 1997. On Pharaon's appeal, the District of Columbia Circuit affirmed the Board's finding that Pharaon was personally liable for his participation in the BCCI scheme and upheld the $37 million penalty. See Pharaon v. Board of Governors of the Federal Reserve System, 135 F.3d 148, 154-57 (D.C.Cir.1998).

Upon Pharaon's failure to pay the penalty, the Board filed an amended complaint in May 1997 in the Southern District of New York. In August, the Board moved for partial summary judgment, requesting the District Court to (i) enter judgment against Pharaon in the amount of $37 million, see 12 U.S.C. § 1818(i)(1) (authorizing the Board to enforce a penalty order by commencing an action in any United States district court); (ii) impose a ten percent surcharge on the civil penalty, see 28 U.S.C. § 3011; and (iii) award prejudgment interest on the penalty from March 3, 1997, the date by which the Board's Final Order directed Pharaon to pay the penalty. Pharaon contested the surcharge and the interest, but did not oppose entry of judgment against him in the amount of $37 million.

The District Court held that a ten percent surcharge was...

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