Louis DeNaples v. Office of the Comptroller of Currency

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 11, 2012 Decided January 29, 2013

No. 12-1162

LOUIS A. DENAPLES,

PETITIONER

v.

OFFICE OF THE COMPTROLLER OF THE CURRENCY,

RESPONDENT

Consolidated with 12-1198

On Petitions for Review of the Final Decisions of the Office

of the Comptroller of the Currency and the Board of

Governors of the Federal Reserve System

Howard N. Cayne argued the cause for petitioner. With

him on the briefs were Lisa S. Blatt, Dirk C. Phillips, and R.

Stanton Jones.

Douglas B. Jordan, Attorney, Office of the Comptroller

of the Currency, argued the cause for respondent. With him

on the brief were Horace G. Sneed, Director of Litigation,

Allen H. Denson, Attorney, Richard M. Ashton, Deputy

General Counsel, Board of Governors of the Federal Reserve

System, Katherine H. Wheatley, Associate General Counsel,

and John L. Kuray, Attorney.

2

Before: ROGERS and BROWN, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge: Section 19 of the Federal Deposit

Insurance Act (FDIA) is enforced by several financial

regulators offering varied (and occasionally inconsistent)

interpretations of its scope. The provision restricts who may

participate in the affairs of insured depository institutions and

bank and savings and loan holding companies; specifically, it

bars from participation individuals who have been convicted

of certain criminal offenses or who have “agreed to enter into

a pretrial diversion or similar program in connection with a

prosecution for” the covered offenses, unless they obtain

consent from the appropriate regulatory agency. 12 U.S.C.

§ 1829. Petitioner Louis DeNaples thought he successfully

avoided the consequences of § 19 by convincing a

Pennsylvania district attorney not to prosecute him for

perjury, but he was wrong: he emerged from the state

proceedings to find that the Office of the Comptroller of the

Currency (“OCC”) and the Board of Governors of the Federal

Reserve System (“Board”) had issued cease-and-desist orders

enforcing § 19. DeNaples now challenges the agencies’

authority to issue the cease-and-desist orders, as well as their

respective conclusions that DeNaples’ agreement with the

prosecutor triggered § 19. We grant his petition in part and

remand to the agencies.

I

At the time of the events that generated this case,

DeNaples wielded significant influence over three financial

institutions. He served as chairman and as a director of First

3

National Community Bank (“First National”) in Pennsylvania

and its parent bank holding company First National

Community Bancorp (“Bancorp”). He also owned a large

number of shares in Bancorp and an unrelated bank holding

company in Connecticut, Urban Financial Group, Inc.

(“Urban”). DeNaples does not dispute that these positions

made him an “institution-affiliated party” of First National,

Bancorp, and Urban, as defined by FDIA. See 12 U.S.C.

§ 1813(u).

For a while, DeNaples also owned the Mount Airy

Casino in Pennsylvania. In 2008, however, the local district

attorney charged him with perjury, alleging he had lied to the

Pennsylvania Gaming Control Board about his relationships

with suspected members of the mob when applying for the

casino’s gaming license. The Gaming Board promptly

suspended DeNaples’ gaming license and prohibited him

from controlling and managing the casino. OCC followed

suit, suspending DeNaples from serving as an officer of First

National and prohibiting him from further participation in the

affairs of any depository institution until the charges were

resolved. See 12 U.S.C. § 1818(g).

In April 2009, DeNaples entered an Agreement for

Withdrawal of Charges (“Agreement”) under which the

district attorney would withdraw all pending criminal charges

if DeNaples would divest his financial and operational

interests in the casino, permit the public release of a report

about procedural irregularities in the underlying grand jury

proceeding, pay the costs of prosecution, waive all legal

claims against the state and its agents arising from the perjury

investigation and prosecution, and file written quarterly

reports with the district attorney describing the status of both

his compliance with the Agreement and any proceedings

before the Gaming Board. The Agreement further provided

4

that the district attorney could reinstate the charges if

DeNaples breached its terms in any material way. The district

attorney subsequently withdrew the charges and entered a

disposition of nolle prosequi.

Unfortunately for DeNaples, things did not end there.

Though the district attorney’s office advised OCC that the

Agreement did not constitute a pretrial diversion or similar

program under state law, OCC nevertheless notified DeNaples

that it considered the Agreement to be such a program and

that it triggered § 19. The Board did the same.

DeNaples did not agree with the agencies’ interpretations

of § 19, so he neither resigned his positions with First

National and Bancorp nor divested his shares of Bancorp and

Urban. The agencies accordingly issued Notices of Charges

and ordered hearings to determine whether they should issue

cease-and-desist orders under 12 U.S.C. § 1818(b). The ALJ

assigned to the case issued a consolidated decision rejecting

DeNaples’ arguments that the agencies were not statutorily

authorized to issue the cease-and-desist orders and that the

Agreement did not constitute a § 19 “pretrial diversion or

similar program.” Seeking to avoid the consequences of the

ALJ’s recommendations, DeNaples entered into a

“superseding addendum” to the Agreement with the

Pennsylvania district attorney acknowledging the parties

negotiated and executed the Agreement with the

understanding that “the criminal charges against Mr.

DeNaples would under no circumstances be disposed of in a

manner that would constitute, or that could be construed as

constituting, Mr. DeNaples’ entry into a pretrial diversion or

similar program”; he also successfully sought expunction of

all records of the charges, including the Agreement. But to no

avail. Both OCC and the Board generally adopted the ALJ’s

recommendations and, in the spring of 2012, issued the

5

dreaded cease-and-desist orders, requiring DeNaples to stop

violating § 19 and to terminate his relationships with First

National, Bancorp, and Urban. DeNaples then filed these

petitions for review.

II

DeNaples argues that the agencies’ cease-and-desist

orders exceeded their statutory authority under FDIA § 8(b),

which empowers OCC and the Board to initiate cease-and-

desist proceedings against an institution-affiliated party who

is violating or has violated a law. See 12 U.S.C. § 1818(b).

The provision is hardly a model of clarity, but the parties’

dispute allows us to avoid wandering FDIA’s linguistic

labyrinth: DeNaples challenges only the agencies’ use of their

cease-and-desist powers to remove him from office when

FDIA provides specific removal mechanisms in § 8(e) and

(g). Subsection (e) empowers the agencies to remove

institution-affiliated parties from office or prohibit them from

participating in the affairs of depository institutions if and

only if the appropriate agency can establish misconduct,

culpability, and a statutorily-defined effect.1 Proffitt v. FDIC,

1

In relevant part, subsection (e) (“Removal and prohibition

authority”) reads:

(1) AUTHORITY TO ISSUE ORDER.—Whenever the appropriate

Federal banking agency determines that—

(A) any institution-affiliated party has, directly or

indirectly—

(i) violated—

(I) any law or regulation;

....

(B) by reason of the violation, practice, or breach

described in . . . subparagraph (A)—

6

200 F.3d 855, 862 (D.C. Cir. 2000). Subsection (g),

meanwhile, authorizes removal and prohibition when there is

a conviction or a “pretrial diversion or other similar program”

in connection with certain crimes, but agencies may invoke

this authority only if the individual’s continued participation

in the institution’s affairs threatens public confidence in the

institution or the interests of the depositors. 12 U.S.C.

§ 1818(g)(1).2 DeNaples insists the agencies may remove

(i) such insured depository institution or business

institution has suffered or will probably suffer

financial loss or other damage;

(ii) the interests of the insured depository

institution’s depositors have been or could be

prejudiced; or

(iii) such party has received financial gain or other

benefit by reason of such violation, practice,

or breach; and

(C) such violation, practice, or breach—

(i) involves personal dishonesty on the part of

such party; or

(ii) demonstrates willful or continuing disregard

by such party for the safety or soundness of

such insured depository institution or business

institution,

the appropriate Federal banking agency for the depository

institution may serve upon such party a written notice of the

agency’s intention to remove such party from office or to

prohibit any further participation by such party, in any manner,

in the conduct of the affairs of any insured depository

institution.

12 U.S.C. § 1818(e).

2

In relevant part, subsection (g) (“Suspension, removal, and

prohibition from participation orders in the case of certain criminal

offenses”) reads:

(1) SUSPENSION OR PROHIBITION.—

....

(C) REMOVAL OR PROHIBITION.—

7

institution-affiliated parties from office only through one of

these two mechanisms. We review de novo the agencies’

interpretation of their cease-and-desist authority, see Grant

Thornton, LLP v. Office of the Comptroller of the Currency,

514 F.3d 1328, 1331 (D.C. Cir. 2008), and affirm.

DeNaples swims against the current because he asks us to

restrict what the statute apparently authorizes. DeNaples

concedes he is an “institution-affiliated party” and never

disputes that § 19 is a “law,” so assuming the agencies

properly determined that DeNaples triggered the § 19

prohibition, DeNaples continues to violate it while he

maintains his relationships with First National, Bancorp, and

Urban without the requisite agency consent. We take no

position on whether § 8(b) generally authorizes removal and

prohibition orders, see Kaplan v. U.S. Office of Thrift

(i) IN GENERAL.—If a judgment of conviction or an

agreement to enter a pretrial diversion or other similar

program is entered against an institution-affiliated

party in connection with a crime [either involving

dishonesty or breach of trust, punishable by more

than one year of imprisonment under either state or

federal law, or that violates specified federal statutes],

at such time as such judgment is not subject to further

appellate review, the appropriate Federal banking

agency may, if continued service or participation by

such party posed, poses, or may pose a threat to the

interests of the depositors of, or threatened, threatens,

or may threaten to impair public confidence in, any

relevant depository institution . . ., issue and serve

upon such party an order removing such party from

office or prohibiting such party from further

participation in any manner in the conduct of the

affairs of any depository institution without the prior

written consent of the appropriate agency.

12 U.S.C. § 1818(g).

8

Supervision, 104 F.3d 417, 420 & n.1 (D.C. Cir. 1997), and

indeed, the agencies tell us it does not. But this is a case

where an individual’s relationship with the financial

institution in question is itself the legal violation, a unique

enforcement scenario, and on such facts, an agency cease-

and-desist order is not rendered improper because it entails

the individual’s removal and prohibition.

We are mindful of the obligation both to recognize the

agencies’ “broad authority,” Golden Pac. Bancorp v. Clarke,

837 F.2d 509, 512 (D.C. Cir. 1988), and to preserve the

statute’s “remedial safeguards,” Oberstar v. FDIC, 987 F.2d

494, 502 (8th Cir. 1993). Section 8, after all, balances the

need to protect financial institutions and the economy against

concerns of fairness and the need to protect against the

possibility of abuse. But we are also mindful of the

“fundamental principle that where Congress has entrusted an

administrative agency with the responsibility of selecting the

means of achieving the statutory policy the relation of remedy

to policy is peculiarly a matter for administrative

competence.” Kornman v. SEC, 592 F.3d 173, 186 (D.C. Cir.

2010) (ellipsis and internal quotation marks omitted). And so

it is here. Whatever the arguments against an agency’s general

use of cease-and-desist authority to remove officers, see, e.g.,

S. REP. NO. 94-843, at 6 (May 13, 1976) (explaining that

cease-and-desist action “can be taken to require the cessation

of such practices short of removal of the individual from

participation in the affairs of the institution” (emphasis

added)); Seidman v. Office of Thrift Supervision, 37 F.3d 911,

929, 939 (3d Cir. 1994) (similar), they have less force when

the agency uses the power to enforce § 19. Subsection (e)’s

misconduct, culpability, and effect requirements may have no

analogue in § 19, but § 19 serves the same function as a proxy

for Congress’s judgment that certain predicate facts are

immediately disqualifying; and there is no call to fear

9

unbridled agency action when the agency action does no more

than enact congressional will. Likewise, though a single set of

predicate facts might trigger both subsection (g) and § 19—

suggesting that a cease-and-desist order could be an end-run

around the limits Congress imposed on the agencies’

prohibition authority—the benefits and detriments are pretty

evenly matched: subsection (g) requires only a

postdeprivation hearing, 12 U.S.C. § 1818(g)(3), while

subsection (b) requires predeprivation procedures, id.

§ 1818(b)(1),3 thus enabling the agencies to pick the

enforcement mechanism “best-suited to a given situation in

light of the balance between supervisory exigency and due

process concerns.” Resp’t’s Br. at 46; see FDIC v. Mallen,

486 U.S. 230, 236 n.7, 246 n.12 (1988) (explaining that § 19

suspension or removal “does not moot a § 1818(g)

suspension” because “[i]n certain respects, the § 1818(g)

suspension is broader in scope than the § 1829 suspension,

thus giving . . . the § 1818(g) suspension at least a marginal

effect”).

That there is overlap among the various enforcement

provisions is not surprising. Congress sought to give the

agencies “more effective regulatory powers to deal with crises

in financial institutions.” Mallen, 486 U.S. at 232. In doing so,

Congress could reasonably hand the agencies a palette

sufficiently sophisticated to capture the full spectrum of

3

For this reason, we reject DeNaples’ suggestion that the

agencies’ invocation of subsection (b) implicates due process

concerns because it does not impose the same sort of constraints on

the agencies’ use of the power as do subsections (e) and (g).

DeNaples’ assertion that under Feinberg v. FDIC, 420 F. Supp. 109

(D.D.C. 1976), the original version of subsection (g) was

constitutionally defective because it contained no standards to guide

agencies’ discretion is imprecise. See FDIC v. Mallen, 486 U.S.

230, 234 n.4 (1988).

10

enforcement possibility. See RadLAX Gateway Hotel, LLC v.

Amalgamated Bank, 132 S. Ct. 2065, 2072 (2012) (explaining

that the interpretive canon that the specific governs the

general is “not an absolute rule,” only a “strong indication of

statutory meaning that can be overcome by textual indications

that point in the other direction”).

III

The agencies’ statutory authority to enforce § 19

notwithstanding, their cease-and-desist orders are proper only

if DeNaples in fact violated the statute. Predictably, DeNaples

claims he did not. Before reaching the merits, however, we

must address the Board’s claim that its interpretations of

FDIA § 19 are entitled to deference under Chevron, U.S.A.,

Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837

(1984). They are not. Justifications for deference begin to fall

when an agency interprets a statute administered by multiple

agencies. See Bowen v. Am. Hosp. Ass’n, 476 U.S. 610, 642

n.30 (1986). This Court has accordingly distinguished among

“generic statutes like the APA, FOIA, and FACA,” statutes

like FDIA under which agencies have specialized—but

potentially overlapping—authority, and statutes “where expert

enforcement agencies have mutually exclusive authority over

separate sets of regulated persons.” Collins v. Nat’l Transp.

Safety Bd., 351 F.3d 1246, 1253 (D.C. Cir. 2003). It is only

the last category that unequivocally demands deference.

We have repeatedly pointed to the agencies’ joint

administrative authority under FDIA to justify refusing

deference to their interpretations.4 See, e.g., Grant Thornton,

4

We have not been entirely consistent and unambiguous on

this point. In Stoddard v. Board of Governors of the Federal

Reserve System, 868 F.2d 1308, 1310 (D.C. Cir. 1989), for

11

LLP, 514 F.3d at 1331; Proffit, 200 F.3d at 860, 863 n.7;

Rapaport v. U.S. Dep’t of Treasury, Office of Thrift

Supervision, 59 F.3d 212, 216–17 (D.C. Cir. 1995); Wachtel

v. Office of Thrift Supervision, 982 F.2d 581, 585 (D.C. Cir.

1993). We have never addressed § 19, but we will not change

course now.

Section 19 vests the Board with exclusive authority to

allow persons who would otherwise be excluded to participate

in the affairs of bank and savings and loan holding

companies. See 12 U.S.C. § 1829(d)–(e). But that does not

mean the Board has exclusive enforcement authority over

§ 19 violations. See, e.g., United States v. Carter, 652 F.3d

894, 897 (8th Cir. 2011) (affirming district court’s sentencing

declaration under 12 U.S.C. § 1829 that convicted defendant

“shall not obtain employment in an institution insured by the

FDIC”). As this case illustrates, a single individual may be

subject to enforcement action by multiple agencies, and were

we to defer to the Board’s interpretation here, we “would lay

the groundwork for a regulatory regime in which either the

same statute is interpreted differently by the several agencies

or the one agency that happens to reach the courthouse first is

allowed to fix the meaning of the text for all.” Rapaport, 59

F.3d at 216–17. We have no reason to think Congress

intended such “peculiar corollaries.” Id. at 217.

Accepting the possibility of multiple coexisting

interpretations as the Board urges us to do is particularly

problematic because, as the Board informs us, § 19 violations

example, we summarily invoked Chevron in rejecting the Board’s

interpretation of FDIA § 8(e). Other circuits have taken a similar

approach. See, e.g., Akin v. Office of Thrift Supervision Dep’t of

Treasury, 950 F.2d 1180, 1185 (5th Cir. 1992); Van Dyke v. Bd. of

Governors of Fed. Reserve Sys., 876 F.2d 1377, 1379 (8th Cir.

1989).

12

may trigger criminal penalties. There is therefore a

compelling need for interpretive uniformity. See Collins, 351

F.3d at 1253; cf. United States v. Santos, 553 U.S. 507, 514

(2008) (plurality opinion) (noting “the fundamental principle

that no citizen should be held accountable for a violation of a

statute whose commands are uncertain, or subjected to

punishment that is not clearly prescribed”). No one should

face “multiple and perhaps conflicting interpretations of the

same requirement,” Collins, 351 F.3d at 1253, when

disobedience may result in imprisonment and million-dollar-

a-day penalties. See 12 U.S.C. § 1829(b).

IV

DeNaples argues he did not violate § 19 because he never

entered into a “pretrial diversion or similar program” and

because the record of his prosecution has been expunged. We

agree the agencies need to reevaluate both issues.

A

In determining that the Agreement constituted a “pretrial

diversion or similar program,” both agencies claimed they

considered the “ordinary meaning” of the phrase and

concluded it extends to any diversion from prosecution in

exchange for an agreement to abide by particular conditions.

As OCC put it, the provision is triggered any time an

individual is “diverted from prosecution by agreeing to certain

conditions”—that is, by any “quid pro quo for the

prosecutor’s withdrawal of charges.” The Board, in turn,

offered a tighter definition, concluding the provision turns on

whether the agreement provides for both a “suspension or

eventual dismissal of charges or criminal prosecution” and a

“voluntary agreement by the accused to treatment,

rehabilitation, restitution or other noncriminal or nonpunitive

13

alternatives,” but it ultimately applied an approach much

closer to OCC’s, determining that the Agreement fell within

the statutory ambit because “the District Attorney withdrew

criminal perjury charges against Respondent conditioned on

Respondent agreeing to certain noncriminal alternatives.”

Neither approach works. The agencies properly sought the

ordinary meaning of the statutory phrase, see Taniguchi v.

Kan Pac. Saipan, Ltd., 132 S. Ct. 1997, 2002 (2012), but

despite their efforts, they did not find it.

“[T]here is no one model of pretrial diversion,” John

Clark, PRETRIAL JUSTICE INST., PRETRIAL DIVERSION AND THE

LAW I-1 (2006), but a few conceptual threads loosely bind the

myriad definitions. Generally, the term “pretrial diversion”

refers to (1) a discrete program that (2) seeks some offender-

or community-oriented outcome. The term is thus defined by

functional, not formal, criteria; it is nothing more than a

recognition that not all offenders need be clapped in irons.

See, e.g., United States v. Moore, 486 F.2d 1139, 1193 (D.C.

Cir. 1973); NATIONAL ASSOCIATION OF PRETRIAL SERVICES

AGENCIES, PERFORMANCE STANDARDS AND GOALS FOR

PRETRIAL DIVERSION/INTERVENTION 1–2 (2008) (“NAPSA,

PRETRIAL DIVERSION”). A standard pretrial diversion might

therefore require education, job services and vocational

training, counseling and psychiatric care, community service,

or restitution payments. See, e.g., BLACK’S LAW DICTIONARY

546, 1307 (9th ed. 2009); DEP’T OF JUSTICE, UNITED STATES

ATTORNEYS’ MANUAL: CRIMINAL RESOURCE MANUAL

§ 712(E) (1997); NATIONAL ASSOCIATION OF PRETRIAL

SERVICES AGENCIES, PRETRIAL DIVERSION IN THE 21ST

CENTURY: A NATIONAL SURVEY OF PRETRIAL DIVERSION

PROGRAMS AND PRACTICES 5 (2009). But at the very least,

pretrial diversion is more than just a quid pro quo resulting in

the dismissal of charges. A plea bargain, for instance, would

not be a pretrial diversion, no matter its similarity to pretrial

14

diversion for other purposes, see, e.g., United States v. Harris,

376 F.3d 1282, 1287 (11th Cir. 2004), nor would an

agreement to testify against a codefendant. Indeed, the

prosecutor might have overcharged the defendant in the first

place hoping to leverage a deal. See H. Mitchell Caldwell,

Coercive Plea Bargaining: The Unrecognized Scourge of the

Justice System, 61 CATH. U. L. REV. 63, 65 & n.13 (2011). If a

quid pro quo alone triggered § 19, an individual like

DeNaples who wished to maintain his relationship with a

bank or bank holding company would have to throw the dice

and hope either the prosecutor unilaterally dismisses the

charges or that he prevails at trial.

The statutory expansion of the pretrial diversion concept

through the “or similar program” language does not, as the

agencies suggested at oral argument, disconnect “pretrial

diversion” from the term “program”; it expands the category

to encompass programs that do not necessarily constitute

pretrial diversion. If, for instance, pretrial diversion is

available only in cases with “prosecutorial merit,” see

NAPSA, PRETRIAL DIVERSION, at 3, or where defendants

“acknowledge responsibility for their actions,” Taylor v.

Gregg, 36 F.3d 453, 455 (5th Cir. 1994), the phrase “or

similar program” ensures the provision might nonetheless be

triggered where the prosecutor decides the case cannot be

successfully prosecuted or where the arrangement does not

require the defendant to acknowledge responsibility. Or it

might be triggered by a defendant who does not meet the

formal eligibility criteria of the available pretrial diversion

program, see, e.g., Note, Pretrial Diversion from the Criminal

Process, 83 YALE L.J. 827, 832–34 (1974), or where the

program involves specialty courts like drug courts, which

arguably do not amount to pretrial diversion because they

require the participation of judicial officers. See, e.g., United

States v. Hicks, 693 F.2d 32, 34 (5th Cir. 1982) (“[N]o

15

‘adjudicative element’ is present in the pretrial diversion

context . . . .”); Joseph M. Zlatic et al., Pretrial Diversion:

The Overlooked Pretrial Services Evidence-Based Practice,

FED. PROBATION, Vol. 74, June 2010, at 29 (“Zlatic et al.,

Pretrial Diversion”) (differentiating pretrial diversion from

“seemingly similar programs, such as specialty courts” that

involve a “judicial officer”). But whatever the contours of the

programs that trigger §19, the ultimate effect of the “or

similar program” language is not to turn the statute from a

scalpel into a chainsaw; it simply ensures that competition

among the various definitions of “pretrial diversion” does not

short-circuit the statute.

To be clear, we do not establish a set of necessary or

sufficient criteria for the term “pretrial diversion” or for the

types of programs that are “similar” to pretrial diversion

programs: the concepts are not amenable to that sort of

precision. But the statutory text dictates a set of parameters

the agencies may not exceed. The Board’s definition—

invoking “treatment, rehabilitation, restitution”—

acknowledges these parameters, and the agencies’ counsel

confirmed them at oral argument when he applied the ejusdem

generis canon of interpretation5 to that definition and

conceded that a defendant’s agreement not to sue the state for

malicious prosecution, to be reaffirmed every year for five

years, would not fall within the Board’s catch-all category of

“other noncriminal or nonpunitive alternatives.” We agree

with this approach. Adherence to the parameters dictated by

the text, generally referenced by the Board’s definition, and

confirmed by the agencies’ counsel at oral argument is

5

“A canon of construction holding that when a general word

or phrase follows a list of specifics, the general word or phrase will

be interpreted to include only items of the same class as those

listed.” BLACK’S LAW DICTIONARY 594 (9th ed. 2009).

16

particularly important because § 19 violations may trigger

steep criminal penalties: the nature of that trigger must be

clear. The agencies’ approaches must accordingly be

consistent with the nature of pretrial diversion; clarity

demands no less. We therefore remand for both agencies to

reconsider whether DeNaples’ Agreement constitutes a

“pretrial diversion or similar program.”

We offer the following additional observation to guide

the agencies on remand: the agencies’ claim that state law is

irrelevant to defining “pretrial diversion or similar program”

misses the relationship between federal and state law in this

context. Section 19 ties the “pretrial diversion or similar

program” to “a prosecution for such offense,” namely “any

criminal offense involving dishonesty or a breach of trust or

money laundering.” As the expansive “any” suggests—and as

the agencies’ enforcement actions in this case confirm—the

category of offenses that trigger § 19 includes more than

federal law. See, e.g., Farlow v. Wachovia Bank of N.C., N.A.,

259 F.3d 309, 311 (4th Cir. 2001); see also Scott v. Illinois,

440 U.S. 367, 380 n.10 (1979) (Brennan, J., dissenting).

Whether someone triggers § 19 by agreeing to enter a pretrial

diversion therefore cannot be neatly severed from the

predicate offense, and we expect agencies will heed the

nuances of federalism. To the extent Congress was concerned

with punishment and expected § 19 to do more than just

provide the agencies a vehicle to make technical

determinations of fitness unique to the financial industry, its

expectations are vindicated by the incorporation of state law

into an agency’s § 19 calculus. See, e.g., H.R. REP. NO. 101-

681(I), at 69, 171, 173 (Sept. 5, 1990), reprinted in 1990

U.S.C.C.A.N. 6472, 6473, 6577, 6579; cf. Nat’l State Bank,

Elizabeth, N.J. v. Long, 630 F.2d 981, 988 (3d Cir. 1980)

(explaining about § 8(b) that Congress “was concerned not

only with federal but with state law as well, particularly as it

17

might bear on corruption of bank officials or the financial

stability of the institution,” so a state prohibition might

“directly implicate[] concerns in the banking field”). Of

course, as our discussion of the “or similar program” language

makes clear, a finding that the Agreement does not fall under

any state conception of pretrial diversion would not preclude

application of § 19. Indeed, if, as OCC suggested in a letter to

DeNaples and the ALJ subsequently affirmed, the terms of the

Agreement amounted to a restitution plan, the extension of

§ 19 to the Agreement may very well be proper. But if not, we

expect the agencies’ ultimate decisions to nevertheless

account for the importance of a mechanism for putting

individuals like DeNaples—who negotiated the Agreement

precisely because it would have no § 19 implications—on

notice about what triggers § 19.

The Board recognized the potential relevance of state law

in its decision below, but it also appears to have minimized

the relevance by claiming that state law definitions of

“pretrial diversion” are “not meant to address” the statutory

interest in assessing “the benefits and risks of [individuals’]

continued involvement in banking.” There is a difference,

however, between the Board’s administrative authority to

grant waivers and the events that trigger § 19 in the first

place. Perhaps state law does not track the interests of federal

regulators, but when congressional judgment about what

should trigger § 19 in the first place turns on state law

precisely because of the interests that the state law

presumably seeks to vindicate, the ostensible gap between the

interests of state actors and federal regulators is a non

sequitur.

18

B

DeNaples rests his entire expunction argument on an

FDIC policy statement excluding “completely expunged”

convictions from the scope of § 19. FDIC Statement of Policy

on FDIA Section 19, 63 Fed. Reg. 66,177, 66,180, 66,184

(Dec. 1, 1998) (“FDIC Policy Statement”). An expunction is

complete, FDIC explained, when “the records of conviction

are not accessible by any party, including law enforcement,

even by court order.” Clarification of Statement of Policy for

Section 19 of the Federal Deposit Insurance Act, 76 Fed. Reg.

28,031, 28,032 (May 13, 2011). According to DeNaples,

because no one—including law enforcement, state licensing

authorities, or other governmental officials—is permitted

access to the record of his prosecution, even by court order,

§ 19 does not apply.

In the cease-and-desist proceedings, the agencies rejected

the FDIC policy as irrelevant. OCC punted on the issue,

explaining that the expunction is relevant only to an FDIC

waiver decision and declaring that the Agreement had legal

force under Pennsylvania law for a period before it was

expunged, so DeNaples in fact violated the statute at some

point. The Board, meanwhile, stated that it is not bound by the

FDIC policy, and even if the policy applied, its treatment of

expunged convictions does not govern an expunged

prosecution; this makes sense, the Board reasoned, because

§ 19 addresses the historical fact of an agreement to enter a

pretrial diversion or similar program, which expunction does

not affect.

According to DeNaples, however, OCC and the Board in

fact adopted the FDIC policy, rendering their refusals to

follow that policy arbitrary and capricious. In particular, he

points to (1) a rule implementing the Secure and Fair

19

Enforcement for Mortgage Licensing Act the agencies jointly

adopted, in which they expressly invoked FDIC’s § 19

exemption of expunged convictions as the touchstone for

determining the scope of certain regulated parties’ disclosure

obligations, see Registration of Mortgage Loan Originators,

75 Fed. Reg. 44,656, 44,670 (July 28, 2010); and (2) an

interim final rule the Board issued “to implement section 19

of the FDI Act with respect to [savings and loan holding

companies]” after the Dodd-Frank Wall Street Reform and

Consumer Protection Act gave the Board supervisory

authority over them. Savings and Loan Holding Companies

Rule, 76 Fed. Reg. 56,508, 56,518 (Sept. 13, 2011). In the

interim final rule, the Board explained that § 19 is not

triggered with respect to savings and loan holding companies

by “arrests, pending cases not brought to trial, . . . or

expunged convictions.” Id. at 56,551.6 Though DeNaples does

not point it out, we note also that OCC’s initial § 19

enforcement letter to DeNaples twice invoked the FDIC

policy statement to justify its legal conclusion. OCC further

noted in its decision below an FDIC staff lawyer’s

explanation that the FDIC policy statement does not

distinguish between expunction of convictions and expunction

of a pretrial diversion agreement. (It is not clear whether this

contradicts FDIC’s assertion in the preamble to its policy

statement that exempting expunged convictions “appears to

create an anomalous result when compared with” the pretrial

6

The agencies suggest DeNaples waived these arguments by

not raising them below, see Coburn v. McHugh, 679 F.3d 924, 929

(D.C. Cir. 2012), but the record belies the agencies’ claim:

DeNaples raised the issue, and the agencies’ orders clearly reflect

their respective positions on the matter. The agencies essentially

ask us to find waiver because DeNaples failed to point the agencies

to their own regulations. This we will not do. See Nuclear Energy

Inst. v. EPA, 373 F.3d 1251, 1290–92 (D.C. Cir. 2004); White v.

U.S. Dep’t of the Army, 720 F.2d 209, 211 (D.C. Cir. 1983).

20

diversion language in § 19. See FDIC Policy Statement, 63

Fed. Reg. at 66,180.)

Synthesizing the various agencies’ positions, we are

apparently left with a scheme that, in practice, operates as

follows. First, FDIC takes the position that individuals whose

pretrial diversion agreements have been completely expunged

need not apply for a § 19 waiver because the statute exempts

them. Second, OCC relied on FDIC’s policy statement when

it initiated its enforcement against DeNaples, but it

nevertheless believes that, notwithstanding a subsequent

expunction, the pre-expunction period is sufficient to trigger

§ 19 and, therefore, its waiver scheme—even though the

agency administering that waiver scheme does not recognize

the need for a waiver application. Third, the Board disclaims

the relevance of the FDIC policy statement with respect to

bank holding companies, but it adopted an equivalent

approach with respect to savings and loan holding companies

even though § 19 provides no clear textual basis for treating

the two types of institutions differently. Perhaps, as the Board

now explains, the interim final rule simply preserved the

status quo set by the Office of Thrift Supervision when it

regulated savings and loan holding companies, but that does

not change the consequence of the interim final rule. Fourth,

both OCC and the Board adopted FDIC’s position on

expunged convictions in the course of administering a

different statute. Different statutes, of course, reflect different

policy goals and seek to achieve different real-world results,

so an agency might reasonably take different approaches to

similar issues in different statutes, but the effect in this

context is bizarre.

This is untenable. Discerning the effect of an expunged

conviction under § 19, let alone an expunged pretrial

diversion arrangement, is like trying to draw a two-

21

dimensional shape on the surface of a grapefruit. As we have

explained, the operation of a statute that may result in the type

of severe criminal penalties imposed by § 19 must be clearer.

On remand, we expect the agencies to sort out their respective

positions.

DeNaples’ argument that the agencies acted arbitrarily

turns on the FDIC policy statement both exempting

expunction of pretrial diversion agreements and binding OCC

and the Board on that point. The agencies argue that is not

clearly the case, and we agree. See FDIC Policy Statement, 63

Fed. Reg. at 66,180. However, other explanations by the

regulators have less traction. While distinctions between

convictions and pretrial diversions may be justifiable, the

agencies must acknowledge these differences explicitly—and

consistently—and explain why they make sense or why the

policy statement should govern in some instances but not

others. See County of L.A. v. Shalala, 192 F.3d 1005, 1022

(D.C. Cir. 1999) (“A long line of precedent has established

that an agency action is arbitrary when the agency offer[s]

insufficient reasons for treating similar situations

differently.”). Until now, the agencies have dedicated little

effort to that explanatory enterprise, focusing rather on the

applicability of the policy statement to the Agreement. On

remand, then, we instruct the agencies to offer a rational

explanation for the applicability (or not) of the policy

statement and a rational distinction (if they have one) between

expunction of convictions and expunction of pretrial diversion

programs. Such is the essence of reasoned decision making.

V

Because the agencies applied an improper definition of

“pretrial diversion or similar program” and failed to

adequately justify their positions on DeNaples’ expunction,

22

we grant DeNaples’ petitions for review in part, vacate the

agencies’ orders, and remand for the agencies to determine

whether the Agreement falls within the parameters we now

identify. In its current form, the agencies’ scattergun approach

is too unpredictable. We deny DeNaples’ petitions in all other

respects.

So ordered.