Simpson v. Office of Thrift Supervision

• Decision Date: 18 July 1994
• Docket Number: 93-70050,Nos. 92-70797,s. 92-70797
• Citation: 29 F.3d 1418
• Parties: Jess T. SIMPSON, former President and Chairman of the Board of Directors, Cascade Savings Bank, Everett, Washington, Petitioner, v. OFFICE OF THRIFT SUPERVISION, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1418

29 F.3d 1418

Jess T. SIMPSON, former President and Chairman of the Board of Directors, Cascade Savings Bank, Everett Washington, Petitioner, v. OFFICE OF THRIFT SUPERVISION, Respondent.

Nos. 92-70797, 93-70050.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 8, 1994.

Decided July 18, 1994.

Jonathan B. Noll, Foster Pepper & Shefelman, Seattle, WA, for petitioner.

Kerry W. Kircher, Office of Thrift Supervision, Washington, DC, for respondent.

Petition for Review of a Decision of the Office of Thrift Supervision; United States Department of the Treasury.

Before: HUG, HALL, and THOMPSON, Circuit Judges.

HUG, Circuit Judge:

Petitioner Jess T. Simpson challenges the administrative proceeding brought against him by the Office of Thrift Supervision ("OTS"). On November 18, 1992, the Director of the OTS ("the Director") issued its final decision and order requiring Simpson to, among other things, pay restitution to Cascade Savings Bank for banking violations. Simpson timely petitioned for review of the Director's decision on December 7, 1992. The Director issued a second order on January 4, 1993, modifying the amount of restitution ordered. Simpson timely petitioned for review of the second order on January 27, 1993. The two petitions have been consolidated.

Simpson raises several challenges to the Director's decision. First, he raises three constitutional claims: 1) the separation of powers doctrine was violated by allowing a non-Article III tribunal to adjudicate his claims; 2) he was denied his Seventh Amendment right to a jury trial; and 3) he was denied procedural due process of law. Simpson also alleges that the statute of limitations bars portions of the restitution ordered. Finally, Simpson contends that the Director erred by concluding that he acted with "reckless disregard" or was unjustly enriched.

We have jurisdiction pursuant to 12 U.S.C. Sec. 1818(h)(2). We conclude that Simpson's constitutional rights were not violated. Further, the restitution order was not barred by the statute of limitations, and the Director did not err in concluding that Simpson acted with reckless disregard. Accordingly, we affirm.

I. FACTS AND PRIOR PROCEEDINGS

Jess T. Simpson was president and chairman of the board of Cascade Savings Bank ("Cascade"), a Washington state-chartered mutual savings and loan association, from 1955 until he resigned on March 13, 1990. Following Simpson's resignation, Cascade hired K.P. Zech, of Z-Associates, Inc., to investigate Simpson. The investigation resulted in a report raising four separate claims of suspected impropriety against Simpson.

Simpson and Cascade failed to reach a settlement regarding the four claims. The OTS thereafter began an investigation of Simpson, culminating in the filing of the Notice of Charges against Simpson on February 12, 1991. Specifically, the Notice of Charges alleged that Simpson engaged in unsafe or unsound practices and "committed acts that constitute willful disregard for Cascade's safety and soundness and breaches of fiduciary duty...." The OTS sought restitution from Simpson for the alleged violations of banking practices.

The unsound practices involved a profit-sharing plan in which Simpson distributed $529,500 in profits to Cascade officers and managers, including $105,000 to himself in 1989. The 1989 final audit revealed, however, that Simpson should not have distributed any profits. The Notice of Charges also alleged that Simpson breached his fiduciary duty to Cascade when he failed to disclose certain details to the loan committee and Board of Directors when it was approving a loan ("the Previs loan") that Simpson arranged. When the borrowers later defaulted, Cascade lost approximately $328,424 on the loan. Finally, the Notice of Charges alleged that Simpson usurped Cascade's corporate opportunities by setting up an independent insurance agency, Insurance Commerce, Inc. ("ICI"), to which commissions were diverted from Cascade customers' purchase of mortgage life insurance. ICI received approximately $161,000 in commissions. Simpson does not challenge the underlying merits of the Previs loan or the ICI commissions claims; rather, Simpson only asserts that the claims are partially barred by the applicable statute of limitations.

The OTS has authority to pursue cease-and-desist proceedings against an institution or an institution-affiliated party if, in its opinion, it has reasonable cause to believe that the institution or the institution-affiliated party has engaged, or is about to engage, in unsafe or unsound business practices, or is violating, or is about to violate, the law. See 12 U.S.C. Sec. 1818(b)(1). At all relevant times, Simpson was an institution-affiliated party of Cascade in accordance with 12 U.S.C. Sec. 1813(u).

The process begins when the OTS issues the Notice of Charges. See 12 C.F.R. Sec. 509.18. After the notice issued, Simpson timely filed an answer. See 12 C.F.R. Sec. 509.19(a). Pursuant to 12 U.S.C. Sec. 1818(b)(1) and 12 C.F.R. Sec. 505.5, Simpson received a hearing before Administrative Law Judge Paul Cross ("the ALJ") from August 26 to August 30, 1991. The ALJ recommended that Simpson be ordered to pay restitution for the amount Simpson distributed to himself, for the amount of the loss on the Previs loan, and for all commissions paid to ICI. In addition, the ALJ imposed a $138,013 civil penalty on Simpson.

At the conclusion of the proceedings, the ALJ filed the record of the proceedings with the Director, including the ALJ's recommended decision, findings of fact and conclusions of law, as well as any transcripts, briefs, motions, rulings, etc. See 12 C.F.R. Sec. 509.38. Both parties took exception to the ALJ's recommended findings of fact and conclusions of law. The Director of the OTS reviewed the complete record and issued its final decision and order. The Director determined that Simpson acted with reckless disregard not only in distributing the profit-sharing to himself, but also when Simpson distributed profit-sharing to the other managers. The Director increased the restitution amount to $1,009,446, taking into account the entire amount of profit-sharing Simpson approved and distributed. However, the Director reversed the ALJ's civil penalty assessment. After learning that Cascade's Board of Directors removed $105,000 from Simpson's account, the Director issued a second order reducing the ordered restitution by that amount. The Director's decision is reviewable by our court pursuant to 12 U.S.C. Sec. 1818(h)(2).

II. SEPARATION OF POWERS

Simpson contends that the adjudication of his case by a non-Article III tribunal violated the separation of powers doctrine provided by the United States Constitution. This claim must fail.

"On its most fundamental plane, the separation of powers doctrine protects the whole constitutional structure by requiring that each branch retain its essential powers and independence." Pacemaker Diagnostic Clinic of America v. Instromedix, 725 F.2d 537, 544 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 100, 83 L.Ed.2d 45 (1984). It is a well-settled rule that "[t]he judicial power of the United States must be exercised by courts having the attributes prescribed in Art. III." Northern Pipeline Co. v. Marathon Pipeline Co., 458 U.S. 50, 59, 102 S.Ct. 2858, 2865, 73 L.Ed.2d 598 (1981) (plurality). Article III, section 1 of the United States Constitution provides:

The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in office.

A line of cases has developed, however, which excepts certain actions from Article III adjudication. Historically excluded from Article III adjudication are cases in territorial courts, court-martials, and cases adjudicating public rights. Northern Pipeline, 458 U.S. at 64-67, 102 S.Ct. at 2868-69. The only applicable exception to this case is the public rights doctrine.

Simpson asserts that his case does not involve public rights, but rather, it essentially involves masqueraded state law claims that could have been asserted by Cascade. Thus, he argues, adjudication by a non-Article III judge violated the separation of powers doctrine. We reject at the outset Simpson's claim that the OTS acted in essence on behalf of Cascade in pursuing a damages claim recoverable under common law. The OTS acted independently pursuant to its congressionally mandated authority under 12 U.S.C. Sec. 1811 et seq. Accordingly, we next address whether this case involves public rights.

Although there is no bright-line rule detailing what constitutes a public rights case, the plurality of the Supreme Court in Northern Pipeline stated that the exception only extends to "matters arising 'between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments,' and only to matters that historically could have been determined exclusively by those departments." Id. at 67-68, 102 S.Ct. at 2869-70 (citations omitted). The plurality held that Article III bars Congress from providing Article I bankruptcy courts with jurisdiction over all matters arising under the bankruptcy laws. Id. at 85, 87, 102 S.Ct. at 2878-79, 2880 (jurisdiction which extended to "all civil matters arising under Title 11 or arising in or related to cases under Title 11" was improper).

The Supreme Court later revisited the public rights exception in Commodity Futures Trading Commission v. Schor, 478 U.S. 833, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986). In reviewing Article III challenges, the Court noted that it weighs a number of nondeterminative factors, including "the extent to which the 'essential attributes of judicial power' are reserved to Article III courts, and, conversely, the extent to which...