Larimore v. Conover, Nos. 84-1971

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtBefore BAUER, Circuit Judge, COFFEY, Circuit Judge, and BROWN; WESLEY E. BROWN; COFFEY
Citation775 F.2d 890
PartiesBerniece LARIMORE, Sam M. Taylor, William G. Butcher, and Orville Bottrell, Petitioners, v. C.T. CONOVER, Comptroller of the Currency, Respondent. to 84-1974.
Decision Date01 November 1985
Docket NumberNos. 84-1971

Page 890

775 F.2d 890
54 USLW 2302
Berniece LARIMORE, Sam M. Taylor, William G. Butcher, and
Orville Bottrell, Petitioners,
v.
C.T. CONOVER, Comptroller of the Currency, Respondent.
Nos. 84-1971 to 84-1974.
United States Court of Appeals,
Seventh Circuit.
Argued Feb. 19, 1985.
Decided Nov. 1, 1985.

Page 891

Robert G. Heckenkamp, Heckenkamp & Simhauser, P.C., Springfield, Ill., Richard G. Hershey, Hershey, Bliss, Beavers, Periard & Romano, Taylorville, Ill., for petitioners.

Ellen Broadman, Office of the Comptroller of Currency, Washington, D.C., for respondent.

Before BAUER, Circuit Judge, COFFEY, Circuit Judge, and BROWN, Senior District Judge. *

WESLEY E. BROWN, Senior District Judge.

Petitioners, past and present directors of the First National Bank of Mt. Auburn, Illinois, petition for review of a Decision and Cease and Desist Order issued by the Comptroller of Currency on May 11, 1984, pursuant to the provisions of 12 U.S.C. Sec. 1818(b)(1). The Comptroller's Order followed a 1982 audit of the bank which disclosed that the board of directors had, in six instances, violated the provision of 12 U.S.C. Sec. 84 which imposed lending limits upon the bank. Under the terms of the Cease and Desist Order, the petitioner directors are required to indemnify the bank for all losses incurred on account of the excessive loans.

This Court has jurisdiction over the Petition for Review, with the power to affirm, modify, terminate, or set aside the Comptroller's

Page 892

Order, pursuant to the provisions of 12 U.S.C. sect. 1818(h)(2). 1

The issues presented in this case include the question of whether or not 12 U.S.C.A. Sec. 1818(b)(1), which authorizes the Comptroller to order bank directors "to take affirmative action to correct the conditions resulting" from their violations of 12 U.S.C.A. Sec. 84, should encompass the requirement of proof of knowledge on the part of directors, a condition of liability found in 12 U.S.C.A. Sec. 93(a). In addition, the directors claim that the Order requiring restitution was not supported by substantial evidence; that the action of the Comptroller was arbitrary and capricious; and that the Comptroller had no jurisdiction over the director Bottrell, who resigned prior to entry of the Cease and Desist Order.

At all times relevant to these proceedings, Sec. 84 of 12 U.S.C. provided that the total obligations to any national bank of any person, partnership, association or corporation could not at any time exceed 10% of the amount of the capital stock of the bank actually paid in and unimpaired, and 10% of its unimpaired surplus fund. 2 Following an audit and report of bank examiners, which disclosed violations of the lending limits of Sec. 84, the Office of the Comptroller of Currency initiated Cease and Desist proceedings against the Bank and its Directors, pursuant to his authority under 12 U.S.C. Sec. 1818(b). That section, codified under the Federal Deposit Insurance Corporation, provides for termination of a bank's status as an insured bank. Paragraph (b) of that section provides that:

"(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 supplied.)

The Cease and Desist Order on review here was entered on May 11, 1984, following hearing before an Administrative Law Judge. In issuing the Order, the Comptroller adopted some of the findings of the Administrative Law Judge, and made independent findings of fact and conclusions from the evidence adduced at the hearing, all to the effect that the directors had knowingly violated the provision of 12 U.S.C. Sec. 84 in approving loans to six different parties. The Bank was ordered not to lend money or to extend credit to any borrower in an amount exceeding the lending limits of Sec. 84, and the board of directors was ordered to "cause all loans or other extensions of credit which are in excess of the lending limitations provided in 12 U.S.C. Sec. 84 to be reduced to conforming amounts without loss to the Bank." The Board was also required to adopt policies

Page 893

and procedures to prevent any recurrence of similar violations.

In addition, the Order required the Directors Bottrell, Butcher, Larimore, Mulberry and Taylor to indemnify the Bank, "up to their respective potential liability" for all losses that the Bank has or may incur as a result of excessive loans to the following bank customers: Bill Porter Construction Company; Twin County Trucking, Inc./Robert Varvel; Keith Montgomery; William Moore; John Thomas; and Dwight Thomas. The total potential liability for the individual directors is $1,084,883 for Bottrell, $744,053 for Butcher, $1,084,883 for Larimore, $1,052,176 for Mulberry and $1,084,883 for Taylor. 3

The factual background which led to the Cease and Desist Order is basically without dispute. The First National Bank of Mt. Auburn is a small, federally chartered bank located in Mt. Auburn, Illinois. In September, 1980, its board of directors consisted of Herbert Bottrell, Chris Gardner, Orville Bottrell, Berniece Larimore, Albert Mulberry and Sam Taylor. Orville Bottrell was President and the active manager of the bank, handling all loans and managing the investment portfolio of the bank. Berniece Larimore was the Cashier, and she was responsible for overall operations.

On September 9, 1980, the Office of the Comptroller began an examination of the bank, which led to the discovery that the bank's board of directors had approved loans exceeding the limitations of Sec. 84 on two separate lines of credit to William Porter and Twin County Trucking/Robert Varvel. At that time the bank examiner discussed his findings with all of the directors, and they were told of the loan limit violations and of their potential liability on illegal loans. They were cautioned to exercise more supervision over loans. The examiner's written report was discussed at a board meeting, and a copy was made available for all directors to review.

Within one month after the 1980 examination, the Porter and Varvel lines of credit were reduced to an acceptable level.

Starting in July, 1981, the board, using loan approval procedures followed from October, 1978, until July, 1982, once again approved a series of excessive loans to Porter and Varvel, as well as to four other parties, that violated the bank's loan limits. Orville Bottrell, who acted as loan officer, actually made the loans and distributed the funds. At a later board meeting, which usually was held on the first Thursday of each month, a list of the loans made during the previous month was distributed to the directors. This list contained the name of the borrower, the date of the loan, the amount of the loan and interest rate, and the due date. There was no information as to the total amount of all loans outstanding to the borrower, and no information concerning the bank's lending limits under Sec. 84 appeared on the list.

In late 1980, Herbert Bottrell resigned as director, and was no longer a member of the board. Chris Gardner resigned his position as director in December, 1981. These two persons were not parties to the administrative proceedings below.

On January 7, 1982, the petitioner William G. Butcher was appointed to fill a vacancy on the board of directors, and he was reelected, along with other directors, on January 26, 1982.

The petitioner, Orville Bottrell, who was president of the bank, resigned that office on December 31, 1982, and he was not reelected as a director on January 25, 1983. The petitioner William Butcher became president of the bank upon Bottrell's resignation, and he remained in that office at the time the petition to review was filed in this Court.

The amounts and character of the various loans which exceeded the limits of Sec. 84 are not disputed. In no way can the violations be said to have been "minimal", or inadvertent. A second examination of

Page 894

the bank, completed on August 20, 1982, revealed excessive loans for Porter Construction, Twin County/Varvel, William Moore, Keith Montgomery, John Thomas and Dwight Thomas. A subsequent examination, completed on December 14, 1982, as well as an informal audit conducted in April, 1983, revealed that these lines of credit, except for D. Thomas, remained in excess of the lending limits of Sec. 84. One example is the Porter Construction line which became excessive on July 3, 1981 with the advancement of $11,000. Prior to that time, the balance on the Porter line of credit was $94,199. Thereafter, the balance on this line reached a total amount of $820,982, $543,624 of which were due to loans made after Mr. Butcher became a director. 4 As of April, 1983, $477,320 of this line of credit had been charged off as loss. The Twin County/Varvel line became excessive on June 10, 1981, by a loan of $7,200. Prior to that date, the balance was $94,874. The line was eventually increased to $183,470, $145,501 of which was extended after Mr. Butcher joined the Board.

The evidence likewise established, without dispute, that all of the excessive loans were approved by...

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  • F.D.I.C. v. Bierman, Nos. 91-2893
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • August 10, 1993
    ...but they nonetheless declined to give close attention to bank affairs). In an analogous context, this circuit in Larimore v. Conover, 775 F.2d 890, 896 (7th Cir.1985), held that under the National Bank Act no exemptions could be provided for either new or outside bank directors who had been......
  • Larimore v. Comptroller of Currency, Nos. 84-1971
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • May 5, 1986
    ...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 Ba......
  • 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
    ...or exercised his judgment in an arbitrary, which is to say unreasonable, 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......
  • CityFed Financial Corp. v. Office of Thrift Supervision, Nos. 94-5254
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 11, 1995
    ...940 F.2d 267, 270-71 (7th Cir.1991); Anaya v. Federal Home Loan Bank Board, 839 F.2d 1349, 1350-51 (9th Cir.1988); Larimore v. Conover, 775 F.2d 890, 896 (7th Cir.1985), rev'd on other grounds, 789 F.2d 1244 (7th Cir.1986) (en banc), superseded by statute, FIRREA Sec. 902 (codified at 12 U.......
  • Request a trial to view additional results
10 cases
  • F.D.I.C. v. Bierman, Nos. 91-2893
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • August 10, 1993
    ...but they nonetheless declined to give close attention to bank affairs). In an analogous context, this circuit in Larimore v. Conover, 775 F.2d 890, 896 (7th Cir.1985), held that under the National Bank Act no exemptions could be provided for either new or outside bank directors who had been......
  • Larimore v. Comptroller of Currency, Nos. 84-1971
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • May 5, 1986
    ...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 Ba......
  • 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
    ...or exercised his judgment in an arbitrary, which is to say unreasonable, 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......
  • CityFed Financial Corp. v. Office of Thrift Supervision, Nos. 94-5254
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 11, 1995
    ...940 F.2d 267, 270-71 (7th Cir.1991); Anaya v. Federal Home Loan Bank Board, 839 F.2d 1349, 1350-51 (9th Cir.1988); Larimore v. Conover, 775 F.2d 890, 896 (7th Cir.1985), rev'd on other grounds, 789 F.2d 1244 (7th Cir.1986) (en banc), superseded by statute, FIRREA Sec. 902 (codified at 12 U.......
  • Request a trial to view additional results

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