United States v. Leuthe, Civil Action No. 01-203 (E.D. Pa. 3/20/2002), Civil Action No. 01-203.
| Decision Date | 20 March 2002 |
| Docket Number | Civil Action No. 01-203. |
| Parties | UNITED STATES OF AMERICA v. JAMES L. LEUTHE. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
This case arises from FDIC bank examinations of First Lehigh Bank in Walnutport, Pennsylvania between 1987 and 1992 which ultimately resulted in defendant's removal from participation in the affairs of the bank. Defendant was also assessed a civil monetary penalty by the FDIC on June 23, 1995. Defendant has never paid the penalty and the government has now filed suit to enforce it. Defendant has asserted affirmative defenses and corresponding counterclaims for setoff and recoupment of the amount of the penalty which he claims was improperly assessed.
Presently before the court is the government's motion for summary judgment, to dismiss defendant's counterclaims pursuant to Fed.R.Civ.P. 12(b)(6) and to strike his affirmative defenses.
In considering a motion for summary judgment, the court must determine whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Arnold Pontiac-GMC, Inc. v. General Motors Corp., 786 F.2d 564, 568 (3d Cir. 1986). Only facts that may affect the outcome of a case are "material." See Anderson, 477 U.S. at 248. All reasonable inferences from the record must be drawn in favor of the non-movant. See id. at 256.
Although the movant has the initial burden of demonstrating the absence of genuine issues of material fact, the non-movant must then establish the existence of each element on which it bears the burden of proof. See J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir. 1990) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)), cert. denied, 499 U.S. 921 (1991). A plaintiff cannot avert summary judgment with speculation or conclusory allegations, such as those found in the pleadings, but rather must present evidence from which a jury could reasonably find in his favor. See Anderson, 477 U.S. at 248; Ridgewood Bd. of Educ. v. N.E. for M.E., 172 F.3d 238, 252 (3d Cir. 1999); Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989); Woods v. Bentsen, 889 F. Supp. 179, 184 (E.D.Pa. 1995).
Dismissal for failure to state a cognizable claim is appropriate when it clearly appears that the non-movant can prove no set of facts in support of the claim which would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Robb v. City of Philadelphia, 733 F.2d 286, 290 (3d Cir. 1984). Such a motion tests the legal sufficiency of a claim while accepting the veracity of the claimant's allegations. See Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990); Sturm v. Clark, 835 F.2d 1009, 1011 (3d Cir. 1987); Winterberg v. CNA Ins. Co., 868 F. Supp. 713, 718 (E.D.Pa. 1994), aff'd, 72 F.3d 318 (3d Cir. 1995). A court may also consider documents appended or integral to the pleadings and matters of public record. See Fed.R.Civ.P. 10(c); Churchill v. Star Enter., 183 F.3d 184, 190 n. 5 (3d Cir. 1999); In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410, 1426 (3d Cir. 1997); Pension Benefit Guaranty Corp. v. White Consolidated Industries, Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). A court, however, need not credit conclusory allegations or legal conclusions in deciding a motion to dismiss. See General Motors Corp. v. New A.C. Chevrolet, Inc., 263 F.3d 296, 333 (3d Cir. 2001); Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir. 1997). A claim may be dismissed when the facts alleged and the reasonable inferences therefrom are legally insufficient to support the relief sought. See Pennsylvania ex rel. Zimmerman v. PepsiCo., Inc., 836 F.2d 173, 179 (3d Cir. 1988).
A motion to strike an affirmative defense is tested under essentially the same standard. Such a motion is appropriately granted when it clearly appears that defendant cannot prove a set of facts in support of his defense sufficient to defeat the claim to which it is addressed. See Cipollone v. Liggett Group, Inc., 789 F.2d 181, 188 (3d Cir. 1986); IBM Corp. v. Comdisco, Inc., 834 F. Supp. 264, 266 (N.D.Ill. 1993); United States v. Geppert Bros., Inc., 638 F. Supp. 996, 998 (E.D.Pa. 1986).
From defendant's averments and the other competent evidence of record, as uncontroverted or otherwise viewed in a light most favorable to defendant, the pertinent facts are as follow.
Defendant was a shareholder of Walnutport State Bank in 1970. He became a member of Walnut Street Bank's board of directors in 1971. On February 18, 1981, defendant was elected Chairman of the board of that bank. On February 1, 1983, Walnutport State Bank merged with and became known as First Lehigh Bank (the "Bank").1 The Bank is a wholly owned subsidiary of First Lehigh Corporation ("FLC"), a one-bank holding company of which defendant was controlling shareholder.2 After the merger defendant continued to serve as Chairman of the board of directors of the Bank until May 1, 1993.3 Defendant was also chairman of the board of directors of FLC from October 15, 1982 through 1992.
The Bank was subject to regular examinations conducted by the Federal Deposit Insurance Corporation ("FDIC") and periodic examinations by the Pennsylvania Department of Banking ("DOB"). After an examination by the FDIC in 1987, the agency noted in a report of February 20, 1987 significant deterioration in all operational areas of the bank and cited pervasive violations of laws and regulations, particularly those designed to prevent insider abuse including transactions prohibited by Regulation "O" of the Regulations and Board of Governors of the Federal Reserve System, 12 C.F.R. § 215. On October 29, 1987, the Bank's board of directors consented to a cease and desist order pursuant to 12 U.S.C. § 1818(i). This order mandated that the Bank take affirmative actions to correct the unsafe and unsound practices identified in the 1987 examination report.4
A January 31, 1989 FDIC report of examination of the Bank revealed eleven new violations of laws and regulations and noted that the Bank was in substantial noncompliance with the 1987 cease and desist order. On May 28, 1991, the FDIC and DOB issued a joint report of examination of the Bank which discussed the continuation of unsafe and unsound practices as well as violations of laws and regulations. A subsequent joint report of examination was issued on May 26, 1992. The Bank again consented to a cease and desist order, which was issued on June 10, 1992.
On September 17, 1992, the Bank stipulated to a temporary cease and desist order issued by the DOB which required the Bank to cease all lending activities except for small installment loans.
By the fall of 1992, the equity capital of the Bank was almost extinguished and the Bank was almost insolvent. On December 9, 1992, the FDIC commenced an action to terminate the Bank's insured status. By letter of December 10, 1992, the FDIC informed the Bank it had five days to correct certain conditions referenced in the letter. A letter was also faxed to the Bank by the DOB on the same day citing problems that needed attention. On December 11, 1992, the DOB initiated proceedings to take possession of the Bank.
The Bank then filed an Application for Special Injunctive Relief in the Commonwealth Court which enjoined the DOB from taking over the Bank until hearings were held on the matter. Following eighteen days of hearings, a settlement was reached between the FDIC, the DOB and the Bank on February 3, 1993. As part of the settlement defendant agreed to cause an infusion of capital, to reduce the Bank's assets through the sale of two branches, to resign as a director of the Bank, to cease all day-to-day involvement with the Bank for a period of two years commencing May 1, 1993 and to place his stock in a voting trust.5
On June 23, 1995, the FDIC issued a fifty-six page Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay and Notice of Hearing against defendant and Harold R. Marvin, Jr.6 After a detailed analysis of numerous violations by the Bank, the FDIC concluded that a civil money penalty should be assessed against defendant in the amount of $500,000.7
A hearing before an Administrative Law Judge ("ALJ") commenced on July 8, 1996 and, with two periods of recess, continued until February 11, 1997.8
On February 13, 1998, the ALJ issued a one hundred and three page decision concluding that defendant should be prohibited from future participation in the affairs of any federally insured financial institution and be assessed a civil money penalty of $250,000.
The ALJ found that the Bank repeatedly violated provisions of the 1987 cease and desist order from the time it was issued through 1992. The ALJ detailed the Bank's consistent failure to comply and its numerous "unsafe and unsound operations" including interested transactions by defendant as well as extension of credit in excess of the Bank's capital and without proper collateralization.9 The ALJ found that defendant "was not only the owner of controlling stock ownership of the Bank, but was also the only non-officer director on the executive, finance audit and loan committees." The ALJ found that defendant's actions resulted in financial gain to him and loss and other damage to the institution and its depositors. The ALJ concluded that a reduction of the penalty to $250,000 was warranted because of defendant's "general lack of attempt to hide the existence of violations, virtually all of which were clearly evidenced by the bank records."
The FDIC issued a final Decision and Order to Prohibit From Further Participation...
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