U.S. v. Holland

• Decision Date: 03 February 1999
• Docket Number: No. 2:97cr139.,2:97cr139.
• Citation: 34 F.Supp.2d 346
• Parties: UNITED STATES of America v. Richard Joyner HOLLAND Sr., and Richard Joyner Holland Jr., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

34 F.Supp.2d 346

UNITED STATES of America v. Richard Joyner HOLLAND Sr., and Richard Joyner Holland Jr., Defendants.

No. 2:97cr139.

United States District Court, E.D. Virginia, Norfolk Division.

February 3, 1999.

Robert J. Seidel, Jr., James A. Metcalfe, United States Attorney's Office, Norfolk, VA, William L. Finch, Department of Justice, Criminal Division—Fraud Section, Washington, DC, for plaintiff.

James Crawford Roberts, Alan Dale Albert, Mays & Valentine, Norfolk, VA, Hunter Wilmer Sims, Jr., Kaufman & Canoles, Norfolk VA, Craig Thomas Merritt, Alexander Wellford, Christian & Barton, Richmond, VA, for defendants.

OPINION AND ORDER

MORGAN, District Judge.

This matter is before the Court on the Defendants' (Hollands) Applications for attorneys' fees and litigation costs pursuant to the Hyde Amendment, the Hollands' motion to strike a portion of the Government's (Prosecution or Government) response to their Hyde Amendment Applications, and Richmond Newspapers, Inc.'s (RNI) motion to intervene and unseal certain documents. A hearing was held on these matters on Wednesday, August 19, 1998 and the Court indicated its findings from the bench. This Order will GRANT the Hollands' Motion to Strike, ENTER JUDGMENT in favor of the Hollands for reimbursement of certain fees and costs and GRANT in part the motion of RNI and FURTHER EXPLAIN the rationale for the Court's rulings.

PART I. FACTUAL FINDINGS BASED UPON THE RECORD¹

The Court FINDS that the Federal Deposit Insurance Corporation's (FDIC) proceedings and the prosecution which its proceedings precipitated are interrelated. A review of the pertinent facts should begin with the events leading to the FDIC investigation of the Farmers Bank of Windsor (the bank), which began December 7, 1991. The chronology of material facts begins on November 7, 1991 and ends on April 16, 1998.

A. THE NOVEMBER 7, 1991 LETTER

On November 7, 1991, Richard J. Holland Jr. (Holland Jr.) wrote a letter to Lyle Helgerson, Regional Director of the FDIC (Helgerson) (Govt.Ex. FDIC-2, Holland Jr. letter of November 7). The letter transmitted payment of civil monetary penalties which were imposed upon the officers and directors of the bank based upon occurrences prior to 1990. The letter was strident in its criticism of the FDIC in general and Helgerson in particular. On December 7, 1991, one month to the day after the Holland Jr. letter, a team of FDIC investigators, led by Chief examiner Edward L. Ostrowski Jr. (Ostrowski), appeared at the bank and began an investigation, the aftermath of which lasted until April 16, 1998.

B. THE EVIDENCE OBTAINED DURING THE DECEMBER 7, 1991 INITIAL FDIC INVESTIGATION

The evidence obtained through the FDIC's December 7, 1991 investigation is not in dispute. All relevant bank documents requested by the FDIC were produced. Ostrowski stated in his report (Def.Ex. 136, January 23, 1992 memo of Ostrowski to Helgerson at P. 2, ¶ 5) that "the apparent violations were not concealed."

The FDIC investigation focused upon a series of seven loans, four of which the bank booked in the name of June O. March (Mrs. March) and three in the name of Gerald C. Jaffe (Jaffe) during the period from November 21, 1990 to July 8, 1991.

The first loan in question was disbursed on November 21, 1990. The original note evidencing this loan was signed by Dr. Lloyd C. March (Dr. March), Mrs. March's husband, on November 21, 1990 and the funds were disbursed sometime after 2:00 p.m. on November 21.² Prior to her husband's signing of this note, Mrs. March had either signed a similar note in the wrong place or indicated her unavailability to sign such a note by November 21. However, Dr. March appeared at the bank on November 21 stating that he urgently needed $350,000 in order to exercise an option on a piece of property which he represented was essential to his development of a movie studio project. After some discussion with Holland Jr., the bank accepted Dr. March's signature on the $350,000 note and disbursed the funds to him, with the understanding that a note signed by his wife for the same amount would be substituted for his note. Since the disbursement occurred after 2:00 p.m. on November 21, it was not entered in the bank's loan ledger on that day, nor was it entered the following day as November 22, 1990 was Thanksgiving. The loan was entered on the bank's loan ledger as the first entry on November 23, 1990.

On November 27, 1990, Mrs. March signed a note in the identical principal amount of $350,000, but there was no disbursement of any funds. Instead, the original $350,000 note signed by Dr. March was marked "paid," and Mrs. March's note was backdated to November 21 to recapture six days of interest.

During the eight month period following November 1990, the bank extended the three additional loans to Mrs. March and the three separate loans to Jaffe. All seven of these loans, including the initial $350,000 loan, were similar in that each was fully documented in the bank records produced to the FDIC, and the funds from five of the loans were disbursed by cashier's checks made payable to Dr. March, while the funds from the remaining two were disbursed by cashier's check payable to Mrs. March who immediately endorsed such checks to Dr. March. These seven notes were also similar in that Dr. March directly or indirectly made interest and principal payments on certain of them and, in some cases, furnished collateral to the signatories of the notes which was in turn pledged to the bank as security for the loans. It appears from the record that the three loans to Jaffe were paid in full and that the collateral was liquidated and applied to the four loans booked in Mrs. March's name. The record does not indicate the exact amount repaid on the four loans in Mrs. March's name, but as of August 23, 1993 the bank stated that no loss was anticipated (Def.Ex. 146, Letter from bank's attorney David H. Baris (Baris) to Helgerson of August 23, 1992 at P. 3).

Neither the FDIC nor the U.S. Attorney's investigation uncovered any evidence that the Hollands personally benefitted or sought to benefit from the seven loans in question. Indeed, in his memo of May 8, 1992, Helgerson stated "We have no evidence to document any direct financial gain by the Hollands as a result of these loan activities [loans to Mrs. March and Jaffe]." (Govt.Ex. FDIC-10, Memo from Helgerson to FDIC director, John W. Stone, of May 8, 1992 at P. 2, ¶ 2). The evidence also indicated that the Hollands jointly owned approximately 30% of the bank's stock and ultimately stood to lose this proportion of any loan losses.

Neither the FDIC's nor the Prosecution's investigation uncovered any evidence of concealment on the part of the Hollands. The chief of the team of examiners who inspected the bank was Ostrowski. In his trial testimony, Ostrowski testified that the Hollands cooperated fully in the investigation. (Trans. P.1151, L.23-25, P. 1152, L.1-7). Ostrowski also documents in his report to Helgerson the absence of evidence of concealment. (Def.Ex.136, supra).

C. FDIC ANALYSIS OF ITS INVESTIGATION

The FDIC memos which postdated Ostrowski's January 23, 1992 report establish that it would seek to remove the Hollands from the bank and also seek civil monetary penalties and restitution against the Hollands and, perhaps, the bank, for the granting of this series of seven loans. The FDIC opined that the seven loans, when aggregated with Dr. March's pre-existing loans from the bank, violated the Virginia lending limit (lending limit) set forth in section 6.1-61 of the Virginia Code.³ The memo of FDIC regional attorney, Richard M. Fraher (Fraher) to Richard C. Barringer (Barringer), FDIC review examiner, dated April 2, 1992 (Def.Ex.73), principally relied upon alleged lending limit violations as the basis for administrative actions against the Hollands and the bank. Fraher's memo also discussed other alternatives including a criminal referral. It is the custom for the FDIC to work with the Virginia Bureau of Financial Institutions (BFI) in conducting investigations of state chartered banks. In the course of discussions between the BFI and the FDIC, the BFI gave its opinion that the lending limit statute was not violated by the seven loans in question, since they should not be aggregated with Dr. March's prior debts for the purpose of determining whether loans to him exceeded the bank's lending limit.⁴ The potential issue of whether the FDIC was bound by the BFI's opinion was not raised, but FDIC memos establish that it proceeded as if it were bound. Prior to the BFI opinion, the FDIC proposed three forms of civil administrative penalties based upon the seven loans which the FDIC had opined to be violations of the lending limit. In his memo of April 2, 1992 to the review examiner, Barringer (Def.Ex.73, supra), Fraher further stated that a criminal referral should be considered, and he went on to state "Realistically, the U.S. Attorney's office will not prosecute this kind of case energetically unless they are attracted by some non-legal consideration, such as the prominence of the respondents." Id. at P. 9.

However, by June 23, 1992, the FDIC knew that the lending limit "was gone" (Tr.P. 1638, L.13) as the basis for seeking civil monetary penalties and restitution from the Hollands.⁵ However, as Fraher testified at trial, he "found another way to skin these cats" (Tr.P.1633, L.3) by using the criminal law as the basis for seeking civil monetary penalties and restitution from the Hollands. He stated in his June 23, 1992 memo: "In this particular instance, using violations of criminal statutes as the basis for an administrative enforcement action raises no constitutional problem related to the double jeopardy clause, because a section 8(b)(6) action is purely compensatory, not punitive." (Def.Ex. 81, Memo from Fraher to Helgerson of June 23, 1992, at P. 3). His memo concluded with a recommendation that the FDIC...