Larimore v. Comptroller of Currency, Nos. 84-1971

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtBefore CUMMINGS, Chief Judge, BAUER, WOOD, CUDAHY, POSNER, COFFEY, FLAUM, EASTERBROOK, and RIPPLE; COFFEY; EASTERBROOK; BAUER
Citation789 F.2d 1244
PartiesBerniece LARIMORE, Sam M. Taylor, William G. Butcher, and Orville Bottrell, Petitioners, v. COMPTROLLER OF the CURRENCY, * Respondent.
Decision Date05 May 1986
Docket Number84-1972,Nos. 84-1971,84-1973 and 84-1974

Page 1244

789 F.2d 1244
54 USLW 2562
Berniece LARIMORE, Sam M. Taylor, William G. Butcher, and
Orville Bottrell, Petitioners,
v.
COMPTROLLER OF the CURRENCY, * Respondent.
Nos. 84-1971, 84-1972, 84-1973 and 84-1974.
United States Court of Appeals,
Seventh Circuit.
Argued Feb. 5, 1986.
Decided April 30, 1986.
As Amended May 5, 1986.

Page 1245

Ronald W. Periard, Hershey, Bliss, Beavers, Periard & Romano, Taylorville, Ill., Robert G. Heckenkamp, Heckenkamp & Simhauser, Springfield, Ill., for petitioners.

Ellen Broadman, Washington, D.C., for respondent.

Before CUMMINGS, Chief Judge, BAUER, WOOD, CUDAHY, POSNER, COFFEY, FLAUM, EASTERBROOK, and RIPPLE, Circuit Judges.

COFFEY, Circuit Judge.

In Larimore v. Conover, 775 F.2d 890 (7th Cir.1985), a panel of this court approved an order of the Comptroller of the Currency requiring the directors of the First National Bank of Mt. Auburn, Illinois ("Bank") to reimburse the Bank for losses resulting from the director's approval of loans in excess of the legal lending limit contained in 12 U.S.C. Sec. 84. The Comptroller of the Currency brought this action pursuant to the cease and desist provision contained in 12 U.S.C. Sec. 1818(b)(1). We granted the petitioner's request for rehearing in banc to address the issue of whether 12 U.S.C. Sec. 1818(b)(1) gives the Comptroller of the Currency the authority to order an individual director of a nationally chartered bank to personally indemnify the bank for losses resulting from his participation in violating 12 U.S.C. Sec. 84. While no specific case law has addressed whether the Comptroller has the authority to impose personal liability, our review of the relevant statutes, 12 U.S.C. Secs. 93(a), 1818(b)(1), and their legislative history reveal that the Comptroller has no such authority, and thus we vacate the order of the Comptroller and dismiss this action.

I

The record reveals that in late 1979 and continuing into 1980 the First National Bank of Auburn board of directors approved loans to Porter Construction and Twin County Trucking Companies in excess of the statutory limit. Title 12 U.S.C. Sec. 84 provided that: "The total obligations to any national banking association of any person, copartnership, association, or corporation shall at no time exceed 10 per centum of the amount of capital stock of such association actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund." 1 An OCC audit of the Bank in

Page 1246

September 1980 revealed loans in excess of the statutory limit to the Porter Construction and Twin County Companies. In its report to the Bank, the Office of the Comptroller of the Currency ("OCC") admonished the directors that its lending procedures were improper, ineffective and in need of immediate revision, stating, "It is necessary that directors exercise more effective supervision over the loan area." In addition, the September 1980 report reviewing the Bank's operations reflected that the OCC advised the directors that they faced potential personal liability for granting loans in excess of the statutory lending limit. Subsequently, the Bank after receiving payments from the Porter Construction and the Twin County Trucking Company on their outstanding loans, reduced their respective lines of credit to comply with the ten percent lending limit. Shortly thereafter, in July 1981, the board of directors once again approved loans to Porter and Twin County Trucking Company in excess of the prescribed ten percent limit.

One-half year later, on January 7, 1982, the appellant Butcher joined the Bank's board of directors. Subsequent to this date, with Butcher present, the board once again approved additional loans to Porter Construction and the Twin County Trucking Company as well as additional loans to three other individuals in excess of the statutory lending limits. The minutes of the Bank's board meeting of March 4, 1982, indicated some concern on the part of certain members of the Board regarding the outstanding Porter Construction loan.

The OCC returned to the Bank on July 26, 1982, conducted another audit, and again discovered that Porter Construction, and the Twin County Trucking Company together with certain other bank customers' lines of credit exceeded the proper legal lending limits. On November 9, 1982, the OCC served the Bank board of directors with notice of a violation of 12 U.S.C. Sec. 84 in granting loans in excess of the statutory limits and commenced administrative proceedings pursuant to 12 U.S.C. Sec. 1818(b)(1) to obtain a cease and desist order against the Bank and its directors. 2 Section 1818(b)(1) of Title 12 provides:

"(b)(1) If, in the opinion of the appropriate Federal banking agency, any insured bank ... or any director, officer, employee, agent, or other person participating in the conduct of the affairs of such a bank is engaging or has engaged, or the agency has reasonable cause to believe that the bank or any directors ... or other person participating in the conduct of the affairs of such bank ... is violating or has violated ... a law, rule, or regulation ... the agency may issue and serve upon the bank or such director ... a notice of charges in respect thereof....

* * *

* * *

In the event ... the agency shall find that any violation ... specified in the notice of charges has been established, the agency may issue ... an order to cease and desist from any such violation or practice. Such order may ... require the bank or its directors ... to cease and desist from the same, and, further, to take affirmative action to correct the conditions resulting from any such violation or practice." (Emphasis added.)

After the administrative law judge ("ALJ") hearing the case determined that the directors had approved loans in excess of the statutory limit, the OCC requested the ALJ to assess personal liability and damages against each director for the losses arising from these loans in excess of the statutory

Page 1247

limits. 3 The ALJ agreed with the OCC's position and imposed personal liability upon each of the bank directors, except for Butcher. The ALJ ruled that the directors "knew or should have known that they were approving extensions of credit in violation of Section 84...." The ALJ found, however, that Butcher "did not know, nor ... have reason to know, that he was approving loans in violation of Section 84." The ALJ reasoned that:

"Respondent Butcher became a member of the BOARD on January 7, 1982. He had no prior experience as a bank director. At no time before the commencement of the Bank examination on July 26, 1982, was he informed of the total amount of the line of credit extended to any borrower from the BANK. Moreover, he was not aware of the October 1980 Report of Examination before July 1982.

* * *

* * *

... [T]he record does not show that respondent Butcher was put on notice to make inquiry into the facts surrounding the approval of loans by the BOARD." (Emphasis in original).

Upon return of the case to the OCC, the Comptroller disagreed with the ALJ's decision regarding the nonassessment of liability and damages against Butcher, and ruled that he (Butcher) should have known that he was approving loans in violation of the legal lending limits in 12 U.S.C. Sec. 84.

"Mr. Butcher was under the same duty to observe the applicable law and to investigate the relevant facts as were the other directors, and he should have known that he was approving loans in violation of 12 U.S.C. Sec. 84. In this respect, it is not a defense that Mr. Butcher was new to the position, or that he was not familiar with the bank's operations."

The Comptroller proceeded to assess personal liability against all the directors and ordered them to indemnify the Bank, "up to their potential liability" for all losses that the Bank incurred or may incur as a result of the excessive loans. The Comptroller imposed joint and several liability and assessed damages in the total amount of $1,084,883 against the directors Bottrell, Larimore, Mulberry and Taylor and $744,053 against Butcher.

Some eighteen months before Butcher joined the board, in September 1980, the OCC warned the present directors of the problem of excessive loans, and also directed the board to "exercise more effective supervision over the loan area." The record reflects that Butcher was not made aware of the warning, much less the directive, until July 1982. Butcher was not placed on notice of the Bank's careless loan procedure until after the OCC's audit in July 1982 revealed that the board had once again approved loans in excess of the statutory limit.

The record sets forth that the bank's lending procedure at the time of the OCC's 1980 examination was for Mr. Bottrell, the Bank president and the chief lending officer, to personally investigate a loan applicant and based on his approval, the loan would be granted, in advance of the board's review. The Bank's procedure also provided that at the next board meeting following the granting of the loan, Bottrell would advise the board of the loans granted and request its approval. At this meeting, he would submit the documentation including the borrower's name, date, amount of the loan, and the interest rate. However, the data given to the board failed to reveal the vital information as to the amount of loans

Page 1248

then outstanding to the particular individual, much less the maximum amount the bank was permitted to lend to a particular borrower pursuant to 12 U.S.C. Sec. 84. Thus, the board entrusted Bottrell, the bank's chief lending officer, totally with the responsibility of ensuring the Bank's compliance with the applicable lending limits. The board, for reasons undisclosed in the record, either failed or refused to revise the loan procedure even after the OCC's 1980 warning and directive regarding the excessive loans and the order to "exercise more effective supervision" to avoid potential personal liability. Consequently, this...

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    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • March 2, 1988
    ...88 S.Ct. 904, 908, 19 L.Ed.2d 1222 (1968); FDIC v. Elefant, 790 F.2d 661, 666 (7th Cir.1986); Larimore v. Comptroller of the Currency, 789 F.2d 1244, 1253 (7th Cir.1986). IH's literal reading would, if applied to certain kinds of sales, simply gut ERISA's employer liability provisions. Any ......
  • McVey Trucking, Inc., Matter of, No. 86-1216
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • February 13, 1987
    ...We then determine, in light of this evidence, what we believe Congress intended. See, e.g., Larimore v. Comptroller of the Currency, 789 F.2d 1244 (7th Cir.1986) (en banc). Page 324 However, the Illinois Secretary of State, the defendant-appellee in this action, argues that the Supreme Cour......
  • Hosp. Corp. of America & Subsidiaries v. Comm'r of Internal Revenue, No. 10663–91
    • United States
    • United States Tax Court
    • July 24, 1997
    ...system are structural components if they can be reasonably adapted to general uses), or of Illinois Cereal Mills, Inc. v. Commissioner, 789 F.2d at 1244 (electrical distribution system was “other tangible property” under section 48(a)(1)(B)).46 Respondent contends further that the disputed ......
  • Central Nat. Bank of Mattoon v. U.S. Dept. of Treasury, No. 89-3219
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • October 16, 1990
    ...fashion. Id.; 5 U.S.C. Secs. 706(2)(A), (E); Larimore v. Conover, 775 F.2d 890, 895-96 (7th Cir.1985), reversed en banc on other grounds, 789 F.2d 1244 (7th Cir.1986). These precepts apply to choice of remedy, id.; del Junco v. Conover, 682 F.2d 1338, 1340 (9th Cir.1982); First National Ban......
  • Request a trial to view additional results
18 cases
  • In re Intern. Harvester's Disp. of Wis. Steel Lit., No. 81 C 7076
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • March 2, 1988
    ...88 S.Ct. 904, 908, 19 L.Ed.2d 1222 (1968); FDIC v. Elefant, 790 F.2d 661, 666 (7th Cir.1986); Larimore v. Comptroller of the Currency, 789 F.2d 1244, 1253 (7th Cir.1986). IH's literal reading would, if applied to certain kinds of sales, simply gut ERISA's employer liability provisions. Any ......
  • McVey Trucking, Inc., Matter of, No. 86-1216
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • February 13, 1987
    ...We then determine, in light of this evidence, what we believe Congress intended. See, e.g., Larimore v. Comptroller of the Currency, 789 F.2d 1244 (7th Cir.1986) (en banc). Page 324 However, the Illinois Secretary of State, the defendant-appellee in this action, argues that the Supreme Cour......
  • Hosp. Corp. of America & Subsidiaries v. Comm'r of Internal Revenue, No. 10663–91
    • United States
    • United States Tax Court
    • July 24, 1997
    ...system are structural components if they can be reasonably adapted to general uses), or of Illinois Cereal Mills, Inc. v. Commissioner, 789 F.2d at 1244 (electrical distribution system was “other tangible property” under section 48(a)(1)(B)).46 Respondent contends further that the disputed ......
  • Central Nat. Bank of Mattoon v. U.S. Dept. of Treasury, No. 89-3219
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • October 16, 1990
    ...fashion. Id.; 5 U.S.C. Secs. 706(2)(A), (E); Larimore v. Conover, 775 F.2d 890, 895-96 (7th Cir.1985), reversed en banc on other grounds, 789 F.2d 1244 (7th Cir.1986). These precepts apply to choice of remedy, id.; del Junco v. Conover, 682 F.2d 1338, 1340 (9th Cir.1982); First National Ban......
  • Request a trial to view additional results

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