Sealed Case (Administrative Subpoena), In re, 94-5004

• Decision Date: 23 December 1994
• Docket Number: No. 94-5004,94-5004
• Citation: 42 F.3d 1412
• Parties: , 63 USLW 2458 In re SEALED CASE (ADMINISTRATIVE SUBPOENA). District of Columbia Circuit
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1412

42 F.3d 1412

310 U.S.App.D.C. 22, 63 USLW 2458

In re SEALED CASE (ADMINISTRATIVE SUBPOENA).

No. 94-5004.

United States Court of Appeals,District of Columbia Circuit.

Argued Oct. 21, 1994.

Decided Dec. 23, 1994.

Jessel Rothman, Mineola, NY, argued the cause for respondents-appellants.

Peter R. Maier, Atty., U.S. Dept. of Justice, Washington, DC, argued the cause for petitioner-appellee.

Before EDWARDS, Chief Judge, SENTELLE and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

In this case, we review a district court order enforcing two subpoenas duces tecum seeking personal financial documents issued by the Office of Thrift Supervision. We affirm the district court's order enforcing the subpoenas with respect to two of their stated purposes: determining personal benefit and assessing ability to pay a civil penalty. Because we hold that the subpoena's third purpose, to investigate "other wrongdoing, as yet unknown," is invalid, we vacate the order of the district court to the extent that it enforces this purpose and remand for a revised determination of relevance.

I.

As part of its effort to stem the savings and loan crisis, Congress created the Office of Thrift Supervision ("OTS") within the Treasury Department in the Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 (codified as amended at 12 U.S.C. Secs. 1441a, 1811 et seq. (1988 & Supp. V 1993)). The OTS is responsible "for the examination, safe and sound operation, and regulation of savings associations." 12 U.S.C. Sec. 1463(a)(1) (Supp. V 1993). Its supervisory and enforcement powers derive from the Home Owners' Loan Act, 12 U.S.C. Sec. 1461 et seq. (1988 & Supp. V 1993), and section 8 of the Federal Deposit Insurance Act. 12 U.S.C. Sec. 1811 et seq. (1988 & Supp. V 1993). Authorized to conduct examinations and investigations of federally-insured savings associations, the OTS may subpoena information relevant "to any matter in respect to the affairs or ownership of any [insured depository] bank or institution or affiliate." 12 U.S.C. Sec. 1820(c) (Supp. V 1993); see also 12 U.S.C. Secs. 1464(d)(1)(B)(v), 1818(n) (Supp. V 1993). The statutory definition of "institution-affiliated parties" in the Federal Deposit Insurance Act includes directors, officers and controlling shareholders. 12 U.S.C. Sec. 1813(u) (Supp. V 1993). Upon discovering an insolvent thrift, the OTS may appoint the Resolution Trust Corporation ("RTC") as receiver or conservator of the failed institution. See 12 U.S.C. Sec. 1821(c)(6)(A) (Supp. V 1993).

In 1986, one of the appellants acquired a controlling interest in a federally-insured, state-chartered savings association ("bank"). He served as an officer and director of the bank and the other appellant served as Chairman of the Board of Directors. At the time of the acquisition of the bank, a mortgage banking business wholly owned by appellants, and the law firm of one of the appellants, made large deposits into accounts at the bank. Appellants' control and operation of both the bank and mortgage company aroused the concern of state and federal regulators. As a result, in 1988, appellants shifted control over the daily management of the bank to a newly appointed president and Chairman of the Board of Directors. Appellants maintained their involvement as directors.

The OTS commenced a routine examination of the bank in October 1990. Discovering that the bank was nearly insolvent, it appointed the RTC as receiver in February 1991. The RTC subsequently sold the bank to another institution, effectively ending appellants' participation in the management of the bank. The OTS investigation also included the mortgage company, which was considered an "affiliate" of the bank because one of the appellants had common control of both institutions at the time the investigation commenced. See 12 U.S.C. Sec. 1462(9) (Supp. V 1993). As a mortgage servicer, the mortgage company collected and held funds in escrow accounts prior to disbursement on behalf of mortgagors to entities such as municipal taxing authorities and insurers.

The OTS investigation revealed an unusual practice: large overdrafts in the law firm deposit accounts were covered by overnight transfers from the mortgage company accounts and reversed the following day. According to the OTS, this practice suggested possible violations by appellants of fiduciary duties to the bank and the mortgage company and various violations of OTS regulations regarding loans to a single borrower, restrictions on loans to affiliated parties, and restrictions on overdrafts on accounts maintained by directors. See 12 C.F.R. Sec. 563.93(d)(1) (1991); 12 C.F.R. Sec. 563.43(b)(5) (1989); 12 U.S.C. Sec. 375b (1988).

To pursue this irregularity, the OTS authorized a formal investigation into the affairs of the bank. On June 25, 1993, it issued an identical subpoena duces tecum to each appellant, seeking production of personal financial documents belonging to appellants, their spouses or "any entity owned or controlled by you or your spouse, or through which you or your spouse do business," including all financial statements, tax returns, all documents relating to bank accounts or other financial investments, and any other documents relating to assets, liabilities, income and expenditures for "the period June 30, 1990, to the present date." Joint Appendix (J.A.) at 21-22 & 33-34. It also required appellants to disclose any documents relating to transfer of assets over $1000 from "January 1, 1989, to the present date." Id. at 22-23 & 34-35.

Appellants refused to comply with the subpoena. After several fruitless exchanges, the OTS sought enforcement in district court. The OTS claimed three purposes for the subpoena: (1) "to determine whether either of [appellants] benefitted from the use of the escrow funds to cover the overdrafts ... at the Bank," (2) "to determine the extent of [appellants'] ability to pay civil money penalties," and (3) to determine whether "the information may reveal other wrongdoing, as yet unknown, in the transactions [appellants] and/or their affiliated businesses had with the Bank during their tenure as owner and directors of the Bank." Petition for Summary Enforcement of Administrative Subpoenas, Nov. 9, 1993, J.A. at 55. The district court found the information sought was reasonably relevant, not unduly burdensome and within the statutory authority of the OTS. See Order to Enforce Administrative Subpoenas, Dec. 21, 1993, J.A. at 119-20.

On appeal, appellants challenge the enforcement of the subpoenas, arguing that the OTS has not yet made a determination of liability, the documents sought are not reasonably relevant to the purposes of the subpoena, and the OTS's purpose of uncovering unknown wrongdoing is invalid. Underlying these arguments is the claim that privacy interests protected by the Fourth Amendment limit the ability of the OTS to obtain personal financial documents. On January 25, 1994, we stayed the enforcement of the subpoenas pending hearing and disposition.

II.

Our role in a subpoena enforcement proceeding is limited to determining whether "the inquiry is within the authority of the agency, the demand is not too indefinite and the information sought is reasonably relevant." United States v. Morton Salt Co., 338 U.S. 632, 652, 70 S.Ct. 357, 369, 94 L.Ed. 401 (1950); see also Resolution Trust Corp. v. Walde, 18 F.3d 943, 946 (D.C.Cir.1994) (same). As we recently emphasized in Resolution Trust Corp. v. Grant Thornton, "If an agency's subpoena satisfies these requirements, we must enforce it." 41 F.3d 1539, 1544 (D.C.Cir.1994). Appellants do not suggest that the request is too indefinite. Therefore, we focus our review on the remaining two requirements: whether the OTS operated within its statutory authority in issuing the subpoena; and whether the requested information was reasonably relevant. We discuss the statutory authority underpinning the OTS's three articulated investigatory purposes, and then consider the relevance of the subpoenaed information.

We are satisfied that the first purpose of the subpoenas--determining personal benefit--is within the OTS's authority, namely its power to issue an order of removal and prohibition. See 12 U.S.C. Sec. 1818(e) (Supp. V 1993). Although appellants were removed from office when the OTS placed the bank into receivership, the OTS may still seek an order of prohibition because such an order may permanently bar appellants from participating in "the affairs of any insured depository institution." 12 U.S.C. Sec. 1818(e)(1). An order of prohibition would be appropriate if, among other things, appellants "received financial gain or other benefit" as a result of a regulatory or statutory violation, unsafe or unsound practice, or a breach of fiduciary duties. 12 U.S.C. Sec. 1818(e)(1)(B)(iii). Alerted to possible violations by the pattern of unusual monetary transfers between the accounts of the two businesses owned by appellants at a bank they controlled, the OTS thus exercised its valid statutory authority to pursue an investigation to determine whether appellants personally benefitted from certain activities.

Appellants urge us to require the OTS to make a preliminary determination of liability before issuing a subpoena for personal financial information. However, nothing in Morton Salt or in the agency's authorizing statutes imposes such a requirement. Indeed, the agency could not fulfill its investigative responsibilities, if, as appellants argue, it first had to make a finding of liability. If, as we have consistently stated, "an investigating agency is under no obligation to propound a narrowly focused theory of a possible future case" when seeking to enforce an administrative subpoena, it certainly cannot be that the agency must make a preliminary finding of liability before it can even initiate an...