Sandsend Financial Consultants, Ltd. v. Federal Home Loan Bank Bd., 88-2991

Decision Date04 August 1989
Docket NumberNo. 88-2991,88-2991
Citation878 F.2d 875
PartiesSANDSEND FINANCIAL CONSULTANTS, LTD., Plaintiff-Appellee, v. FEDERAL HOME LOAN BANK BOARD, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

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. 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 expired. The court decided the motion without waiting for the FHLBB's time to respond to expire; without ordering the FHLBB to respond, as the RFPA mandates; without holding a hearing; and without rendering an opinion. The FHLBB filed a motion for reconsideration, which the district court denied. 3

The court took these extraordinary measures without issuing an opinion, leaving us only to speculate on the reasons for its actions. In these circumstances, we cannot divine on which of the many possible grounds the court quashed the subpoena and cannot effectively review its action in doing so. For instance, either the scope of the FHLBB's subpoena power or the legitimacy of the FHLBB's investigation of Vision Banc or the relevance of Sandsend's bank records to the Vision Banc examination or the FHLBB's compliance with the RFPA could have been dispositive of the motion to quash. The FHLBB appeals.

II. THE SCOPE OF THE FHLBB'S INVESTIGATORY AUTHORITY

The parties frame the issues in a confusing manner. Sandsend asserts that the FHLBB's subpoena power does not extend to the records of a party who is not directly associated with the target of an FHLBB examination. As Sandsend is not associated with Vision Banc, the argument runs, the FHLBB cannot issue a subpoena for Sandsend's records. Under Sandsend's theory, whether the FHLBB complied with the RFPA is irrelevant because the FHLBB did not have the authority to issue the subpoena. In contrast, the FHLBB analyzes the case under the RFPA. According to the FHLBB, whether its investigatory authority extends to Sandsend's financial records turns on the RFPA inquiry: whether the FHLBB is conducting a legitimate law enforcement inquiry and whether the Sandsend records are relevant to that inquiry. Neither party hits the nail directly on the head.

The inquiry that the FHLBB is authorized to make is not whether Sandsend has violated the law, but whether Vision Banc has done so. It is undisputed that the FHLBB's examination of Vision Banc is a legitimate law enforcement inquiry. Sandsend's records may facilitate that inquiry. Properly framed, the threshold issue is whether, pursuant to a legitimate law enforcement inquiry, the FHLBB may subpoena a bank customer's records if neither the bank nor the customer is directly associated with the target of the FHLBB's inquiry. Answering this query in the affirmative, we conduct an RFPA inquiry and conclude that no matter what ground the district court relied upon to quash the subpoena, the court erred.

The FHLBB's subpoena power extends to Sandsend's financial records; it is not limited to parties directly associated with the target of an investigation. Although this case presents a question of first impression, we are not without guidance. At the outset, we note two important principles that inform our inquiry: First, an administrative agency's power to issue subpoenas as it performs its investigatory function is a broad-ranging one which courts are reluctant to trammel. The agency

has a power of inquisition, if one chooses to call it that, which is not derived from the judicial function. It is more...

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