Proffitt v. Fed. Deposit Ins. Corp.

• Decision Date: 21 January 2000
• Docket Number: No. 98-1534,98-1534
• Citation: 200 F.3d 855
• Parties: (D.C. Cir. 2000) Billy Proffitt Petitioner v. Federal Deposit Insurance Corporation, Respondent
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 855

200 F.3d 855 (D.C. Cir. 2000)

Billy Proffitt Petitioner v. Federal Deposit Insurance Corporation, Respondent

No. 98-1534

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 14, 1999

Decided January 21, 2000

[Copyrighted Material Omitted]

On Petition for Review of an Order of the Federal Deposit Insurance Corporation

Frank J. Eisenhart argued the cause for the petitioner. Arthur W. Leibold, Jr. entered an appearance.

Jack D. Smith, Deputy General Counsel, Federal Deposit Insurance Corporation, argued the cause for the respondent. Christopher J. Bellotto and Lawrence H. Richmond, Counsel, Federal Deposit Insurance Corporation, were on brief.

Robert B. Serino, L. Robert Griffin and Douglas B. Jordan, Counsel, United States Department of Treasury, were on brief for amicus curiae.

Before: Silberman, Ginsburg and Henderson, Circuit Judges.

Opinion for the court filed by Circuit Judge Henderson.

Dissenting Opinion filed by Circuit Judge Silberman.

Karen LeCraft Henderson, Circuit Judge:

In 1998 the Federal Deposit Insurance Corporation (FDIC) removed Billy Proffitt as director of Tennessee State Bank of Gatlinburg, Tennessee (Bank) and prohibited him from further participation in the banking industry. The FDIC acted pursuant to its removal authority under section 8(e), 12 U.S.C. 1818(e), of the Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1811 et seq. It ruled that 28 U.S.C. 2462, which imposes a five-year statute of limitations on "an action ... for the enforcement of any ... penalty," does not limit a section 8(e) removal and prohibition action because the sanction is remedial, not punitive. Relying on Johnson v. SEC, 87 F.3d 484, 488 (D.C. Cir. 1996), which defined "penalty" as used in section 2462 as any "punishment imposed by the government for unlawful or proscribed conduct, going beyond compensation of the wronged party," we conclude that the FDIC's section 8(e) removal action imposes a penalty and therefore triggers the five-year statute of limitations. We also conclude that the limitations period can be triggered separately under section 8(e)'s alternative "effects" language and therefore the FDIC's action was timely because it was brought within five years of when the Bank "suffered financial loss." 12 U.S.C. 1818(e)(1)(B)(i). Finally, because the FDIC's section 8(e) removal and prohibition order imposes a penalty, due process does not require the FDIC to consider Proffitt's current competence or risk to the public vel non. Accordingly, we deny Proffitt's petition for review.

I.

Proffitt was the majority shareholder of Tennessee State Bancshares, Inc., a holding company which, in turn, is the majority shareholder of the Bank. Proffitt, a co-founder of the Bank, served as its director from the date it was chartered in 1971 until the FDIC removed him in 1998. In July 1989 Charles and Nancy Boling, customers of the Bank who were in the motel business in Gatlinburg at the time, approached Bank president Tommy Bush to discuss a loan to purchase the Glenstone Lodge (Lodge), a hotel which was then in bankruptcy. The Bolings requested complete confidentiality about the loan and all information they furnished to the Bank. See Findings of Fact, Chancery Court for Sevier County, TN 3 (Feb. 17, 1992). They specifically expressed concern that some members of the Bank's board of directors (Board) who were also in the motel business might be interested in bidding on the Lodge. See id. Bush promised the Bolings that no director who had an interest in purchasing the Lodge would see any of the information they provided or participate in the consideration of their application for a loan. See id. at 3-4. A few days after their initial meeting, Bush informed the Bolings that he had checked with the Board and no member was interested in buying the Lodge. The Bolings then applied for a $4.5 million loan and provided the Bank with financial information, including their personal financial statements and detailed projections of income and expenses for operation of the Lodge. See id. at 4. The Bank Board authorized Bush to investigate whether additional financing could be obtained from other lenders since the requested loan amount exceeded the Bank's $1.5 million loan-to-one-borrower limit. These efforts failed and, after several months, Bush stopped looking for additional loan funds, although the Bolings remained interested in buying the Lodge. See Administrative Law Judge's (ALJ) Recommended Decision 14 (Feb. 12, 1998).

In December 1989, unknown to the Bolings, Proffitt joined the Foley Group, a group of investors interested in acquiring the Lodge. At the time, Proffitt advised Bush only that he was considering joining the Foley Group. In early 1990 Proffitt participated with the Foley Group in submitting several unsuccessful offers to purchase the Lodge from the bankruptcy trustee. At least one other member of the Bank Board was at that time aware of Proffitt's participation in the Foley Group. See Proffitt's Statement of Disputed and Omitted Facts 4 (Aug. 4, 1997).

Meanwhile, in January 1990 the Bolings submitted a revised loan request to the Bank. Bush considered the Bolings' request a new package because they requested only a $4 million loan package (with the Bank continuing to provide $1.5 million) and offered different primary collateral. On March 7, 1990 the Bank Board, including Proffitt, met to formally consider the Bolings' loan request. Bush asked any Board member who was interested in purchasing the Lodge to leave the room. Proffitt failed to leave the room or disclose his conflicting interest in the Foley Group. Bush then distributed the Bolings' confidential information to each Board member. The Bank Board, including Proffitt, unanimously approved the Bolings' loan package. On March 12, 1990 the Bank issued a written loan commitment to the Bolings in the amount of $1.5 million.

The foreclosure sale of the Lodge was scheduled to be held on March 30, 1990. On March 27, 1990 Charles Boling went to Bush's office and advised him that a Kentucky bank had informally approved a participating loan for the additional amount needed. Proffitt, who was in Bush's office at the time, listened to the discussion between Boling and Bush, including Boling's strategy for bidding at the auction. See FDIC's Decision and Order 4 (Oct. 6, 1998). Because the Lodge was subject to a $100,000 tax lien, Boling told Bush that $3.4 million was their top bid. After Boling left Bush's office, Proffitt informed Bush of his Foley Group connection. Bush told Proffitt to inform the Bolings of his conflict but he did not do so. On March 30, 1990 the foreclosure sale of the Lodge took place. The first mortgagee, the Foley Group and the Bolings were the only bidders. The Bolings bid their maximum of $3.4 million. The Foley Group then bid $3.405 million and acquired the Lodge.

That night the Bolings learned for the first time that Proffitt belonged to the Foley Group. In July 1990 they filed a lawsuit against the Bank, Proffitt and Bush, alleging inter alia breach of fiduciary duty and fraud. In February 1992 the state trial court entered judgment against Proffitt and the Bank. In August 1993 the Tennessee Court of Appeals reversed the trial court's judgment, concluding that Proffitt's fraud had not caused the Bolings any damage.¹ See Boling v. Tennessee State Bank, 1993 WL 305824 (Tenn. Ct. App. Aug. 11, 1993). In November 1994 the Tennessee Supreme Court reversed the intermediate appellate court's decision, see Boling v. Tennessee State Bank, 890 S.W.2d 32 (Tenn.1994), and reinstated the judgment against Proffitt for fraud because he willfully violated his fiduciary duties. The court reduced the compensatory damages award to $14,825 (representing the Bolings' costs of bid preparation) against the Bank and Proffitt jointly and upheld the $250,000 punitive damages award against the Bank and the punitive damages award in the same amount against Proffitt.

On December 18, 1996, more than six years after Proffitt's actions, the FDIC issued a Notice of Intention to Remove from Office and to Prohibit from Further Participation (Removal and Prohibition Notice), charging Proffitt with "violations of law, unsafe or unsound banking practices, and/or ... breaches of fiduciary duty." Removal and Prohibition Notice 1 (Dec. 18, 1996). In response to Proffitt's motion for summary disposition, the ALJ found that Proffitt had violated section 8(e)² and recommended that Proffitt be removed from (A) any institution-affiliated party has, directly or indirect-ly--(i) violated(I) any law or regulation;....membership on the Bank Board and prohibited from further participation in the banking business. See ALJ's Proposed Order 19-20 (Feb. 12, 1998). The ALJ rejected Proffitt's assertion that the FDIC's removal and prohibition action was barred by the five-year statute of limitations prescribed in 28 U.S.C. 2462 (section 2462).³ The ALJ found section 2462 inapplicable because it conflicts with the six-year limitations period imposed by 12 U.S.C. 1818(i)(3).⁴ See ALJ's Recommended Decision 2 (Feb. 12, 1998). On October 6, 1998 the FDIC affirmed the ALJ's removal and prohibition decision but determined that section 2462 was inapplicable for a different reason, namely, that a "removal and prohibition action is intrinsically remedial ... and can be brought 'whenever' the statutory conditions are satisfied." FDIC's Decision and Order 16 (Oct. 6, 1998). The removal order went into effect on November 5, 1998. Proffitt petitions this court for review.

II.

Our standard of review comes from the Administrative Procedure Act (APA), 5 U.S.C. 706(2)(E). "Applying the standards set forth in the Administrative Procedure Act ... we will set aside the [FDIC's] factual findings only if unsupported by substantial evidence on the record as a whole, 5 U.S.C. 706(2)(E) (1994); we will set aside the [FDIC's] legal conclusions only if...