Lindquist & Vennum v. F.D.I.C.

• Decision Date: 08 January 1997
• Docket Number: 95-3226,Nos. 95-3203,95-3256 and 95-3284,s. 95-3203
• Citation: 103 F.3d 1409
• Parties: LINDQUIST & VENNUM, Petitioner, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent. Wayne FIELD, Petitioner, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent. Richard D. DONOHOO, Craig R. Mathies, Cheryl C. Godbout-Bandal, Petitioners, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent. Bruce A. RASMUSSEN, Bruce A. Rasmussen & Associates, Ltd., Petitioners, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1409

103 F.3d 1409

LINDQUIST & VENNUM, Petitioner, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent.

Wayne FIELD, Petitioner, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent.

Richard D. DONOHOO, Craig R. Mathies, Cheryl C.

Godbout-Bandal, Petitioners, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent.

Bruce A. RASMUSSEN, Bruce A. Rasmussen & Associates, Ltd., Petitioners, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent.

Nos. 95-3203, 95-3226, 95-3256 and 95-3284.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 21, 1996.

Decided Jan. 8, 1997.

Robert J. Sheran, argued, Minneapolis, MN (Mary E. Curtin and Susan E. Barnes, Minneapolis, MN, on the brief), for Lindquist & Vennum.

Mark R. Whitmore, argued, Minneapolis, MN (Lewis A. Remele, Jr., Minneapolis, MN, on the brief), for Wayne Field.

Mary E. Curtin, argued, Minneapolis, MN (Susan E. Barnes, Minneapolis, MN, on the brief), for Richard D. Donohoo, Craig R. Mathies, Cheryl C. Godbout-Bandal.

Kathryn Norcross, FDIC, argued, Washington, DC, for the FDIC.

Before FAGG, HEANEY, and HANSEN, Circuit Judges.

HEANEY, Circuit Judge.

Petitioners seek review of an order of the Federal Deposit Insurance Corporation (FDIC) prohibiting Richard D. Donohoo and Craig R. Mathies from further participation in the banking industry; directing all petitioners to cease and desist from violating the Change in Bank Control Act of 1978 (CBCA), 12 U.S.C. § 1817(j) (1988), and engaging in self-dealing and insider transactions; ordering the individual petitioners to pay civil monetary penalties for statutory and regulatory violations; and ordering petitioners to reimburse Capital Bank for legal fees paid to two law firms on behalf of the individual petitioners. Petitioners describe their activities as an honest effort to save Capital Bank through recapitalization. The FDIC characterizes the effort as a devious attempt to gain control of Capital Bank at the expense of the majority shareholders in violation of the CBCA and Regulation O. Petitioners, who claim that the FDIC's determination was based on an improper interpretation of federal law and unsupported by the record, may be treated essentially as two sets of parties: five individuals who played various roles in Capital Bank and the sale of shares in the bank (individual petitioners); and two law firms that advised the individual petitioners in the sale of the Capital Bank shares and represented the bank in a subsequent lawsuit arising from the sale (law firm petitioners). We enforce the portion of the FDIC's decision and order that imposes sanctions on the individual petitioners for unsafe and unsound banking practices and that requires petitioner Rasmussen to pay the outstanding balance and interest on a loan from People's Bank. We modify the order as it applies to reimbursement to Capital Bank for legal fees in the Wenzel Lawsuit, and deny enforcement of the order as it applies the FDIC's cease-and-desist authority to the law firm petitioners.

I. STANDARD OF REVIEW

We review the order of the FDIC pursuant to the Administrative Procedure Act (APA), 5 U.S.C. § 706(2) (1988), and enforce the order if the FDIC made no errors of law and if its findings of fact are supported by substantial evidence on the record as a whole. Oberstar v. FDIC, 987 F.2d 494, 503 (8th Cir.1993). We review issues of law de novo. Seidman v. OTS, 37 F.3d 911, 924 (3d Cir.1994). Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Culbertson v. Shalala, 30 F.3d 934, 939 (8th Cir.1994). We may not substitute our judgment for that of the FDIC. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971). If an agency considered a recommendation by an Administrative Law Judge (ALJ), we review the ALJ's recommendation as part of the record and require an agency to show that it gave the recommendation "attentive consideration" if the agency departs from it. Simon v. Simmons Foods, Inc., 49 F.3d 386, 389-90 (8th Cir.1995).

II. UNSAFE AND UNSOUND BANKING PRACTICES

A. Change in Bank Control Act Violations

We consider first whether the individual petitioners violated the CBCA by acting in concert in the issuance and purchase of 7,000 new shares of Capital Bank without obtaining prior regulatory approval. The CBCA provides:

(1) No person, acting directly or through or in concert with one or more persons, shall acquire control of any insured depository institution through a purchase ... of voting stock of such insured depository institution unless the appropriate Federal banking agency has been given sixty days' prior written notice of such proposed acquisition....

12 U.S.C. § 1817(j)(1). The control of a bank is "the power, directly or indirectly, to ... vote 25 per centum or more of any class of voting securities of an insured depository institution." 12 U.S.C. § 1817(j)(8)(B). The FDIC found that all of the petitioners violated the CBCA.

1. Petitioners Donohoo, Mathies, Godbout-Bandal, and Rasmussen

Donohoo and Mathies were the primary actors in the issuance, sale, and purchase of the new Capital Bank shares and the subject of the FDIC's prohibition order. The ALJ found that in May 1988, they purchased 24.9% of the outstanding stock of Capital Bank's holding company, Capital City Corporation (CCC) from George Heaton. Heaton had purchased 99% of CCC from the Wenzel family in 1981 for consideration that included an $800,000 note Heaton was obligated on to the Wenzels (Wenzel note). In addition to the shares, Donohoo and Mathies purchased an option to buy the rest of Heaton's CCC shares for $1,025,000, financed by loans of $500,000 from Midway Bank (Midway loan) and $127,680 from People's State Bank in Winthrop, Iowa, and by assuming $400,000 liability on the Wenzel note. Following the purchase, Donohoo and Mathies became directors and officers of both CCC and Capital Bank. By January 1989, Donohoo and Mathies controlled Capital Bank's board of directors after replacing the previous directors with their own selections. Godbout-Bandal became involved in the effort to gain control of the bank as an investor in the attempt by Donohoo and Mathies to purchase a majority interest in CCC in 1988 and 1989. Rasmussen was a director, executive officer, and principal shareholder of Capital Bank.

We believe that, with respect to the individual petitioners, the FDIC properly interpreted the CBCA, and substantial evidence on the record as a whole supports the FDIC's finding that individual petitioners acquired control of Capital Bank through a concerted effort in violation of the CBCA. The percent of Capital Bank's shares acquired by petitioners in sum exceeded the statutory definition of control. ¹ The individual petitioners argue that there is no evidence of their "acting in concert" to acquire control of the bank because there was no formal agreement between them--such as a proxy assignment, purchase and sale agreement, voting agreement, cross-pledge, collateral guaranty, or cross-guaranty--and because the individual petitioners did not all know every other investor. These findings are not prerequisites for a determination that the group acted in concert. Even absent a formal agreement, the shares of individuals may be considered together for determining control. FDIC v. D'Annunzio, 524 F.Supp. 694, 699 (N.D.W.Va.1981); see also Wellman v. Dickinson, 682 F.2d 355, 363 (2d Cir.1982) (to find concerted effort, an agreement need not be written and may be informal, and group activity may be proven circumstantially); SEC v. Savoy Indus., 587 F.2d 1149 (D.C.Cir.1978). Further, persons acting in concert need not know each other. Blumenthal v. United States, 332 U.S. 539, 557, 68 S.Ct. 248, 256-57, 92 L.Ed. 154 (1947). Not only would petitioners' approach contradict statutory support for findings based on circumstantial evidence, it would also limit the effect of the CBCA to only the least sophisticated perpetrators of illegal bank takeovers.

Evidence supporting the FDIC's conclusion that the individual petitioners worked in concert abounds. Beginning in May 1988, Donohoo and Mathies established the investment group that included Godbout-Bandal and Rasmussen to finance the exercise of their CCC stock options, and the money invested came primarily from loans to the investors from Capital Bank. When foreclosure on the loan for which Capital Bank's stock served as collateral could not be stalled any longer, Donohoo and Mathies decided to issue new stock in Capital Bank and sell it directly to the members of their investment group. Donohoo and Mathies knew all of the participants in the plan prior to its genesis. Although the previous, unsuccessful effort by individual petitioners to acquire Capital Bank's holding company would not support a finding of concerted effort by itself, combined with other evidence on the record, ² it provides circumstantial evidence of the group's intent to gain control of Capital Bank. See Wellman, 682 F.2d at 363; cf. Herman & MacLean v. Huddleston, 459 U.S. 375, 390 n. 30, 103 S.Ct. 683, 692 n. 30, 74 L.Ed.2d 548 (1983) ("circumstantial evidence can be more than sufficient" in civil cases).

Donohoo's acknowledgement that the CBCA applied to the Capital Partners effort and his statement that the group had "gotten together" to save Capital Bank through the stock issuance and purchase ³ further reveal that individual petitioners intended to act in concert to acquire control of the bank. Most of the individual petitioners accepted financing from Capital Bank or its affiliates, which were controlled by Donohoo and Mathies, in close proximity to their purchases of "investment units" in Capital City Corporation from Donohoo and Mathies. ⁴ Prior to the sale of the 7,000 new Capital Bank shares, the FDIC indicated its belief that the group was acting in concert, and warned individual petitioners...