878 F.2d 875 (5th Cir. 1989), 88-2991, Sandsend Financial Consultants, Ltd. v. Federal Home Loan Bank Bd.

Docket Nº:88-2991.
Citation:878 F.2d 875
Party Name:SANDSEND FINANCIAL CONSULTANTS, LTD., Plaintiff-Appellee, v. FEDERAL HOME LOAN BANK BOARD, Defendant-Appellant.
Case Date:August 04, 1989
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 875

878 F.2d 875 (5th Cir. 1989)

SANDSEND FINANCIAL CONSULTANTS, LTD., Plaintiff-Appellee,

v.

FEDERAL HOME LOAN BANK BOARD, Defendant-Appellant.

No. 88-2991.

United States Court of Appeals, Fifth Circuit

August 4, 1989

Page 876

Cassandra N. Jones, Thomas J. Segal, Kenneth A. Cureton, Asst. Director, Office of Enforcement, Fed. Home Loan Bank Bd., Washington, D.C., for defendant-appellant.

Jane Cooper-Hill, Jeanne Sommerfeld, Richie & Greenberg, Houston, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before GEE, GARZA and JONES, Circuit Judges.

GEE, Circuit Judge:

This case requires us to examine the scope of the Federal Home Loan Bank Board's (FHLBB's) power to issue subpoenas for the records of bank customers. Concluding that the FHLBB acted within its statutory power and that it complied with the statutory requirements for issuing the subpoenas in question, we reverse the judgment of the district court.

I. BACKGROUND

A. The Federal Home Loan Bank Board And Its Investigatory Powers

The FHLBB, an independent federal agency, is the "operating head" of the Federal Savings and Loan Insurance Corporation (FSLIC). See Home Owner's Loan Act of 1933, 12 U.S.C. Section 1461 et seq. (1982); National Housing Act, 12 U.S.C. Section 1724 (1982). The FSLIC insures the qualifying accounts of certain financial institutions. In addition, the FHLBB (or the FSLIC) examines all FSLIC-insured institutions to determine whether they are operating in a safe and sound manner and in accordance with applicable laws and regulations. See 12 U.S.C. Sections 1726(b) and 1730(m)(1). To allow the FHLBB to fulfill its duties, Congress granted it broad investigatory powers. The FHLBB's investigatory authority extends to insured institutions and to "the affairs of all affiliates of such institutions...." Section 1730(m)(1). 1 Along with the authority to investigate, Congress provided the FHLBB the tools to investigate:

In connection with examinations of insured institutions and affiliates thereof, [the FHLBB] ... shall have the power to administer oaths and affirmations and to examine and to take and preserve testimony under oath as to any matter in respect of the affairs or ownership of any such institution or affiliate thereof, and to issue subpoenas and subpoenas duces tecum, and for the enforcement thereof, to apply to the United States district court ...

Section 1730(m)(2) (emphasis added).

The Right to Financial Privacy Act (RFPA) limits the FHLBB's--and all government agencies'--powers to issue subpoenas for the records of bank customers. In United States v. Miller, the Supreme Court held that a bank customer had no legitimate expectation of privacy in his bank records. 425 U.S. 435, 442-43, 96 S.Ct. 1619, 1623-24, 48 L.Ed.2d 71 (1976), so that when a federal agency issued a subpoena for customer records from a bank, the customer could not successfully challenge the subpoena on fourth amendment grounds. In response to Miller, Congress enacted the RFPA, a limited means by which bank customers can shield their financial records from government scrutiny.

Page 877

The RFPA sets out the procedures and grounds for challenging a subpoena and provides the "sole judicial remedy available to a customer to oppose disclosure of financial records pursuant to this chapter." 12 U.S.C. Section 3410(e). An agency may obtain a bank customer's records from the bank only if "(1) there is reason to believe that the records sought are relevant to a legitimate law enforcement inquiry"; (2) the agency serves the customer with a copy of the subpoena and with the statutory notice of his right to challenge the subpoena; and (3) the customer does not challenge the subpoena within ten days of service or 14 days of mailing the subpoena. Section 3405.

To challenge a subpoena, a customer must file a motion to quash that includes an affidavit or sworn statement. In the affidavit the customer must state, inter alia, either that the financial records are not relevant to the agency's inquiry--and the reasons supporting his belief--or that the government has not substantially complied with the RFPA. Section 3410(a). If the district court finds that the customer has properly challenged the subpoena, it "shall order the Government authority to file a sworn response ..." Section 3410(b) (emphasis added). Upon finding that there is a demonstrable reason to believe that the agency is conducting a legitimate law enforcement inquiry and that the records sought are relevant to that inquiry, the court "shall deny the motion" to quash. Section 3410(c) (emphasis added). Bearing in mind the narrowly circumscribed nature of the court's discretion under the RFPA, we turn to the subpoena at issue in this case.

B. The FHLBB's Subpoena For Sandsend's Financial Records

The FHLBB was conducting an examination of Vision Banc Savings and Loan (Vision Banc). As part of this examination, the FHLBB investigated the use and application of the proceeds of Vision Banc loans. During the examination, the FHLBB discovered a large loan transaction that piqued its curiosity: Vision Banc had granted four individual loans totalling $20,400,000 to four companies. The companies had then used the loan proceeds to purchase four contiguous tracts of land from Walton Development Co. (Walton). The proceeds of these real estate transactions, funds that originated at Vision Banc, flew home to some suspicious roosts. For example, Walton gave $2.5 million of the money and a tract of land 2 to Robert Corson (Corson). Corson was the Chairman of the Board and the majority stockholder of Vision Banc. Walton also gave $7 million to Sandsend Financial Consultants, Ltd. (Sandsend). Sandsend deposited the money at West Belt Bank (West Belt) and made several large disbursements from its account.

The FHLBB believes that Sandsend received $7 million for "no apparent reason" and made disbursements of that money within days of receiving it. The FHLBB finds the transactions suspicious for several reasons: it suspects that Sandsend is a participant in a scheme to misuse the proceeds of Vision Banc's loan or to defraud Vision Banc and that the four individual loans actually were one loan that exceeded Vision Banc's lending limits.

Hoping to learn more about the suspect loan transaction, the FHLBB issued a subpoena to West Belt for Sandsend's financial records on June 20, 1988. On July 8, three days after its time to challenge the subpoena had expired, Sandsend filed a motion to quash. Sandsend asserts that the FHLBB had twenty days to respond to the motion to quash; the FHLBB asserts that it had sixty days to respond. In any event, the district court quashed the subpoena on June 26--before the FHLBB had filed a responsive pleading and two (or perhaps 42) days before its time to do so...

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