DeNaples v. Office of Comptroller of the Currency

• Decision Date: 29 January 2013
• Docket Number: 12–1198.,Nos. 12–1162,s. 12–1162
• Citation: 706 F.3d 481
• Parties: Louis A. DeNAPLES, Petitioner v. OFFICE OF the COMPTROLLER OF the CURRENCY, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

706 F.3d 481

Louis A. DeNAPLES, Petitioner

v.OFFICE OF the COMPTROLLER OF the CURRENCY, Respondent.

Nos. 12–1162, 12–1198.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 11, 2012.

Decided Jan. 29, 2013.

On Petitions for Review of the Final Decisions of the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System.

Howard N. Cayne argued the cause for petitioner. With him on the briefs were Lisa S. Blatt, Dirk C. Phillips, and R. Stanton Jones.

Douglas B. Jordan, Attorney, Office of the Comptroller of the Currency, argued the cause for respondent. With him on the brief were Horace G. Sneed, Director of Litigation, Allen H. Denson, Attorney, Richard M. Ashton, Deputy General Counsel, Board of Governors of the Federal Reserve System, Katherine H. Wheatley, Associate General Counsel, and John L. Kuray, Attorney.

Before: ROGERS and BROWN, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge:

Section 19 of the Federal Deposit Insurance Act (FDIA) is enforced by several financial regulators offering varied (and occasionally inconsistent) interpretations of its scope. The provision restricts who may participate in the affairs of insured depository institutions and bank and savings and loan holding companies; specifically, it bars from participation individuals who have been convicted of certain criminal offenses or who have “agreed to enter into a pretrial diversion or similar program in connection with a prosecution for” the covered offenses, unless they obtain consent from the appropriate regulatory agency. 12 U.S.C. § 1829. Petitioner Louis DeNaples thought he successfully avoided the consequences of § 19 by convincing a Pennsylvania district attorney not to prosecute him for perjury, but he was wrong: he emerged from the state proceedings to find that the Office of the Comptroller of the Currency (“OCC”) and the Board of Governors of the Federal Reserve System (“Board”) had issued cease-and-desist orders enforcing § 19. DeNaples now challenges the agencies' authority to issue the cease-and-desist orders, as well as their respective conclusions that DeNaples' agreement with the prosecutor triggered § 19. We grant his petition in part and remand to the agencies.

I

At the time of the events that generated this case, DeNaples wielded significant influence over three financial institutions. He served as chairman and as a director of First National Community Bank (“First National”) in Pennsylvania and its parent bank holding company First National Community Bancorp (“Bancorp”). He also owned a large number of shares in Bancorp and an unrelated bank holding company in Connecticut, Urban Financial Group, Inc. (“Urban”). DeNaples does not dispute that these positions made him an “institution-affiliated party” of First National, Bancorp, and Urban, as defined by FDIA. See12 U.S.C. § 1813(u).

For a while, DeNaples also owned the Mount Airy Casino in Pennsylvania. In 2008, however, the local district attorney charged him with perjury, alleging he had lied to the Pennsylvania Gaming Control Board about his relationships with suspected members of the mob when applying for the casino's gaming license. The Gaming Board promptly suspended DeNaples' gaming license and prohibited him from controlling and managing the casino. OCC followed suit, suspending DeNaples from serving as an officer of First National and prohibiting him from further participation in the affairs of any depository institution until the charges were resolved. See12 U.S.C. § 1818(g).

In April 2009, DeNaples entered an Agreement for Withdrawal of Charges (“Agreement”) under which the district attorney would withdraw all pending criminal charges if DeNaples would divest his financial and operational interests in the casino, permit the public release of a report about procedural irregularities in the underlying grand jury proceeding, pay the costs of prosecution, waive all legal claims against the state and its agents arising from the perjury investigation and prosecution, and file written quarterly reports with the district attorney describing the status of both his compliance with the Agreement and any proceedings before the Gaming Board. The Agreement further provided that the district attorney could reinstate the charges if DeNaples breached its terms in any material way. The district attorney subsequently withdrew the charges and entered a disposition of nolle prosequi.

Unfortunately for DeNaples, things did not end there. Though the district attorney's office advised OCC that the Agreement did not constitute a pretrial diversion or similar program under state law, OCC nevertheless notified DeNaples that it considered the Agreement to be such a program and that it triggered § 19. The Board did the same.

DeNaples did not agree with the agencies' interpretations of § 19, so he neither resigned his positions with First National and Bancorp nor divested his shares of Bancorp and Urban. The agencies accordingly issued Notices of Charges and ordered hearings to determine whether they should issue cease-and-desist orders under 12 U.S.C. § 1818(b). The ALJ assigned to the case issued a consolidated decision rejecting DeNaples' arguments that the agencies were not statutorily authorized to issue the cease-and-desist orders and that the Agreement did not constitute a § 19 “pretrial diversion or similar program.” Seeking to avoid the consequences of the ALJ's recommendations, DeNaples entered into a “superseding addendum” to the Agreement with the Pennsylvania district attorney acknowledging the parties negotiated and executed the Agreement with the understanding that “the criminal charges against Mr. DeNaples would under no circumstances be disposed of in a manner that would constitute, or that could be construed as constituting, Mr. DeNaples' entry into a pretrial diversion or similar program”; he also successfully sought expunction of all records of the charges, including the Agreement. But to no avail. Both OCC and the Board generally adopted the ALJ's recommendations and, in the spring of 2012, issued the dreaded cease-and-desist orders, requiring DeNaples to stop violating § 19 and to terminate his relationships with First National, Bancorp, and Urban. DeNaples then filed these petitions for review.

II

DeNaples argues that the agencies' cease-and-desist orders exceeded their statutory authority under FDIA § 8(b), which empowers OCC and the Board to initiate cease-and-desist proceedings against an institution-affiliated party who is violating or has violated a law. See12 U.S.C. § 1818(b). The provision is hardly a model of clarity, but the parties' dispute allows us to avoid wandering FDIA's linguistic labyrinth: DeNaples challenges only the agencies' use of their cease-and-desist powers to remove him from office when FDIA provides specific removal mechanisms in § 8(e) and (g). Subsection (e) empowers the agencies to remove institution-affiliated parties from office or prohibit them from participating in the affairs of depository institutions if and only if the appropriate agency can establish misconduct, culpability, and a statutorily-defined effect.¹Proffitt v. FDIC, 200 F.3d 855, 862 (D.C.Cir.2000). Subsection (g), meanwhile, authorizes removal and prohibition when there is a conviction or a “pretrial diversion or other similar program” in connection with certain crimes, but agencies may invoke this authority only if the individual's continued participation in the institution's affairs threatens public confidence in the institution or the interests of the depositors. 12 U.S.C. § 1818(g)(1).² DeNaples insists the agencies may remove institution-affiliated parties from office only through one of these two mechanisms. We review de novo the agencies' interpretation of their cease-and-desist authority, see Grant Thornton, LLP v. Office of the Comptroller of the Currency, 514 F.3d 1328, 1331 (D.C.Cir.2008), and affirm.

DeNaples swims against the current because he asks us to restrict what the statute apparently authorizes. DeNaples concedes he is an “institution-affiliated party” and never disputes that § 19 is a “law,” so assuming the agencies properly determined that DeNaples triggered the § 19 prohibition, DeNaples continues to violate it while he maintains his relationships with First National, Bancorp, and Urban without the requisite agency consent. We take no position on whether § 8(b) generally authorizes removal and prohibition orders, see Kaplan v. U.S. Office of Thrift Supervision, 104 F.3d 417, 420 & n. 1 (D.C.Cir.1997), and indeed, the agencies tell us it does not. But this is a case where an individual's relationship with the financial institution in question is itself the legal violation, a unique enforcement scenario, and on such facts, an agency cease-and-desist order is not rendered improper because it entails the individual's removal and prohibition.

We are mindful of the obligation both to recognize the agencies' “broad authority,” Golden Pac. Bancorp v. Clarke, 837 F.2d 509, 512 (D.C.Cir.1988), and to preserve the statute's “remedial safeguards,” Oberstar v. FDIC, 987 F.2d 494, 502 (8th Cir.1993). Section 8, after all, balances the need to protect financial institutions and the economy against concerns of fairness and the need to protect against the possibility of abuse. But we are also mindful of the “fundamental principle that where Congress has entrusted an administrative agency with the responsibility of selecting the means of achieving the statutory policy the relation of remedy to policy is peculiarly a matter for administrative competence.” Kornman v. SEC, 592 F.3d 173, 186 (D.C.Cir.2010) (ellipsis and internal quotation marks omitted). And so it is here. Whatever the arguments against an agency's general use of cease-and-desist authority to remove officers, see, e.g.,S. Rep. No. 94–843, ...