Petition for Writ of Certiorari — Abercrombie v. Clarke

Supreme Court brief1991

Ask Donna

What actually matters in this document.

Text

> a Supreme © ;

90-1626 fT er D

APR 22 199}

No. mvensnintietiatinnalie: OFFICE OF THE CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1990

MANLEY ABERCROMBIE, ROBERT @Q. CALLOWAY,

RICHARD F. ECKEL, DONALD E. HEDRICK, and

E. WESTON SLOAN,

Petitioners

ROBERT L. CLARKE,

COMPTROLLER OF THE CURRENCY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Wayne Hartke

Hartke & Hartke

Attorneys for Petitioners

7637 Leesburg Pike

Falls Church, Virginia 22043

Telephone: 703/734-2810

QUESTIONS PRESENTED:

1. Whether subject matter jurisdiction

exists for violations which occurred in

the past under a penal statute written by

Congress in "present tense" language.

2. Whether a penal statute, imposing

civil money penalties under 12 USC

1818(i)(2) and 12 U.S.C. 93(b) on bank

directors for past acts, requires a strict

statutory construction of the words used

in the statute.

3. Whether statutory language written

in a penal statute which uses past tense

language in a section (a) and present

tense language in the next section (b) of

the same statute can be construed to have

both sections apply to past acts.

4. Whether a subsequent statute, which

is in pari materia to the original

statute, bars liability for past acts of

these directors, when the original statute

is written in "present tense” language but

with no specific reference to liability

for past acts, and the subsequent statute

which is in pari materia to the original

statute retains the same "present tense"

language but adds liability for past acts

which would exclude liability on the bank

directors at issue.

5. Whether a "Notice of Assessment of

Civil Money Penalties" containing

specified alleged violations constitutes

a Procedural Due Process Notice, or is a

"gratuitous" document rendered unnecessary

by the execution of a Cease and Desist

Order reciting the terms of an agreement

between a bank and its regulatory body.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED i

TABLE OF CONTENTS iii

TABLE OF AUTHORITIES vi

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT 1

OPINIONS BELOW 1

JURISDICTION 2

STATUTORY PROVISION INVOLVED ae @

STATEMENT OF THE CASE 3

BASIS FOR FEDERAL JURISDICTION

IN THE COURT OF FIRST INSTANCE 3

Whether civil money penalties

under 12 USC 93(b) and 12 USC

1818(i)(2)(i) can be imposed for

wholly past acts. 4

1. The statutory language is

clear; penal statutes are to be

strictly construed. 7

2. Conclusory finding of ambiguity;

misquote of Supreme Court’s opinion. 14

3. Pervasive use of the present

tense. 16

iii

4. This decision requires one to

ignore words in the legislative

history.

5. Amended statute, in pari

materia, mandates statutory

construction of prior act as

barring liability for past acts.

6. The "Notice of Assessment" is a

document mandated by procedural due

process; it is not gratuitous.

REASONS WHY THE PETITION FOR

WRIT OF CERTIORARI SHOULD BE

GRANTED.

I. Violates U.S. Supreme Court

precedent; statutory language is

unambiguous; misquotes U.S. Supreme

Court; potential of “avalanche of

errors" in reliance on misquote.

II. Contrary to rules of statutory

construction; penal statute;

constitutes judicial re-writing

of statutory words.

III. Violates binding 7th Circuit

precedent; violates rule of

statutory construction when sec.

A is in past tense, and sec. B is

in present tense.

IV. Requires Court to ignore

terms contained in the

legislative history.

Page

V. Violates Rules of statutory

construction for statutes in

pari materia.

VI. Violates procedural due

process rights of bank directors.

CONCLUSION

Page

TABLE OF AUTHORITIES

Page

12 USC 93 (a) 14,

12 USC 93 (b) 3, 6, 7, 17, 27

12 USC 1818 (i)(2)(i) 2, 3, 4;

6, 7, 17, 27

12 USC 1818 (1i)(2)(iii) 3

12 USC 1818 (i)(2)(iv) 4

U.S. Senate Report 95-323,

lst Sess. (1977). 18

Cases:

Abercrombie, et al. v. Office

of the Comptroller of the Currency,

(Decision below, Abercrombie II)

920 F2d 1351 (7th Cir., 1990). a. 4, @,

Abercrombie, et al. v. Office

of the Comptroller of the Currency,

(Abercrombie I),

833 F2d 672 (7th Cir., 1987). i6, 17, 25

Alexander v. Alexandria,

5 Cranch 1, 3 L.Ed. 19 (1809). 22

Cutten v. Wallace,

80 F2d 140 (1935). 9, 10, 28, 28, 28

Page

Garner v. Louisiana, 368 US 157,

7 L Ed2d 207, 82 S Ct 248 (1961). 24

Gwaltney of Smithfield v.

Chesapeake Bay Foundation, Inc.,

et al., 484 US 49, 98 L Ed 2d 306,

108 S Ct 376, at p. 381. (1987). tea Be

id, 23,

16, 17, 26, 28

Tiffany v. The National Bank of

the State of Missouri, 18 Wall 409,

85 US 862 (1873). ~

United States v. Freeman,

3 How 556, 11 L.Ed 724 (1845). 23

United States v. Montgomery

Ward & Co., 150 F2d 369 (7th Cir.). 23

Vil

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1990

MANLEY ABERCROMBIE, ROBERT @Q. CALLOWAY,

RICHARD F. ECKEL, DONALD E. HEDRICK, and

E. WESTON SLOAN,

Petitioners

ROBERT L. CLARKE,

COMPTROLLER OF THE CURRENCY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

PETITIONERS Manley Abercrombie, Robert

Q@. Calloway, Richard F. Eckel, Donald E.

Hedrick, and E. Weston Sloan petition for

a Writ of Certiorari to review the

decision of the United States Court of

Appeals for the Seventh Circuit in this

case.

OPINIONS BELOW

A decision was rendered by the United

States Court of Appeals for the Seventh

eee

Circuit on December 26, 1990, and after

timely filing of petitioner’s Petition for

Rehearing with Suggestion of En Banc, the

same Court denied the Rehearing and

Rehearing En Banc on January 23, 1991.

The decision of the United States Court of

Appeals for the Seventh Circuit is

attached as Appendix A. The decision is

reported in 920 F2d 1351.

JURISDICTION

The decision of the Court of Appeals

was decided on December 26, 1990.

Petitioners timely filed their Petition

for Rehearing with Suggestion of En Banc,

and the Petition for Rehearing and of the

Rehearing En Banc was denied on January

23, 1991. The jurisdiction of this Court

is invoked under 28 U.S.C. 1254(1).

STATUTORY PROVISIONS INVOLVED

12 U.S.C. 1818 (1i)(2)(i) provides:

Any insured bank which violates or any

officer, director, employee, agent, or

other person participating in the conduct

of the affairs of such a bank who violates

the terms of any order which has become

final and was issued pursuant to

subsection (b) or (c) of this section,

shall forfeit and pay a civil penalty of

not more than $1,000 per day for each day

during which such violation continues:

Provided, That the agency having authority

to impose a civil money penalty may, in

its discretion, compromise, modify, or

remit any civil money penalty which is

subject to imposition or has been imposed

under such authority. The penalty may be

assessed and collected by the appropriate

Federal banking agency by written notice.

As used in this section, the term

"violates" includes without any limitation

any action (alone or with another or

others) for or toward causing, bringing

about, participating in, counseling, or

aiding or abetting a violation.

12 USC 93(b) contains identical language.

Statement of the Case

Federal jurisdiction is conferred

pursuant to 12 USC 1818(i)(2)(iii) which

provides for an initial administrative

hearing, with the right to petition for

review by the U.S. Court of Appeals

pursuant to 12 USC 1818(i)(2)(iv). As

stated by the Court below, "[T]Jhe basic

question before us is whether the

Comptroller appropriately determined that

civil money penalties could be assessed

for past violations of cease and desist

orders." (920 F2d at p.1356). 12 USC

1818(i)(2) is a penal statute providing

for imposition of civil money penalties

for violations of a cease and desist order

signed by the directors of Rushville

National Bank (hereinafter referred to as

"Bank") and its regulatory agency, the

Office of the Comptroller of the Currency

(hereinafter referred to as "OCC"). The

statutory language reads in pertinent

part:

"Any ... director ... who violates

the terms of any order which has become

final ... shall forfeit and pay a civil

penalty of not more than $1,000 per day —

for each day during which such

violation continues.... As used in

this section, the term "violates"

includes without any limitation any

action (alone or with another or

others) for or toward causing, bringing

about, participating in, counseling, or

aiding or abetting a violation." 12

USC 1818(i)(2)(i); see also 12 USC

93(b) (as written in 1985).

(underlining added).

The OCC sought to impose those civil

money penalties on the Rushville National

Bank directors (referred to hereinafter as

"“directors") for violations which appeared

in the OCC’s examination of the Bank dated

January al. 1985. The Notice of

Assessment was dated October 25, 1985.

That Notice alleged "past tense”

violations:

"The Office of the Comptroller of

the Currency has issued a Notice of

Assessment of a Civil Money Penalty

against each member of the Board of

Directors who participated ;in the

violation..." (Cover letter to the

Notice of Assessment from OCC dated

October 25, 1985. underlining added).

"This assessment is issued on the

basis of violations ... which occurred

"The January 31, 1985 Report of

Examination ... revealed that the Board

of Directors violated ten (10)

Articl@@s<cs” «se

"RESPONDENTS caused, brought about,

participated in, counselled or aided

and abetted the violation ...” (See

Notice of Assessment of Civil Money

Penalties, October 25, 1985)

(underlining added).

Significantly, the October 1985 Notice

of Assessment stated that the directors

(Respondents) were afforded the

administrative hearing pursuant to both 12

USC 93(b) and 12 USC 1818(i)(2), which

contain identical present tense language.

Since the violations recited in the

January 31, 1985 examination involved acts

which were fully terminated by April 8,

1985, (See opinion below, 920 F2d at 1355)

it is clear that the OCC seeks to impose

liability on the bank directors for "past

acts” by resort to a penal statute written

in the "present tense.” The directors

assert that there is no subject matter

jurisdiction, and that the principles of

statutory construction bar imposition of

these civil money penalties.

Ba The statutory language is clear;

penal statutes are to be strictly

construed. The directors urge that the

language of Sections 93(b) and

1818(i)(2)(i) are clear and unambiguous in

the "present tense" words. This Court has

held:

"It is well settled that "the

starting point for interpreting a

statute is the language of the

statute itself. Consumer Product

Safety Comm’n v. GTE Sylvania, Inc.,

447 U.S. 102, 108, 100 S.Ct. 20651,

2056, 64 L.Ed.2d 766 (1980).”

Gwaltney of Smithfield v. Chesapeake

Bay Foundation, Inc., et al., 484 US

49, 98 L Ed 2d 306, 108 S Ct 376, at

p. 381. (1987).

The words of these statutes (93(b) and

1818(i)(2)(i)) contain no language in the

past tense. To rule that these statutes

apply to "past tense" behavior requires a

change from the existing tense of the

verbs.

In Tiffany v. The National Bank of the

State of Missouri, 18 Wall 409, 85 US 862

(1873), the Supreme Court held:

"In an action like the present,

brought to recover that which is

substantially a statutory penalty, the

statute must receive a strict, that is,

a literal construction. The defendant

is not to be subjected to a penalty

unless the words of the statute plainly

impose it.” Id., at 85 US 863.

This principle of statutory

construction has continued intact to this

day. In 1987, this Court specifically

ruled that "past tense penalties" cannot

be imposed under the terms of a "present

tense" statute. This Court in Gwaltney of

Smithfield v. Chesapeake Bay Foundation,

Inc., et al., 484 US 49, 98 L Ed 2d 306,

108 S Ct 376 (1987) held that federal

subject matter jurisdiction was not

conferred by a statute containing the

"present tense” language of Sec. 505(a) of

the Clean Water Act, i.e., "alleged to be

in violation." That language is less

clearly "present tense" language than the

case at bar. The present case contains

more clear "present tense” language of

"violates ... as long as the violation

continues ... causing, aiding, abetting.”

In the Seventh Circuit, there is a case

from 1935 which is directly on point,

strictly construing the statutory words

" "

is violating” and is attempting to

manipulate." In Cutten v. Wallace, 80 F2d

140, the Seventh Circuit was analyzing the

Grain Futures Act. The case is remarkably

Similar to the case at bar in that it

compares Section 6(a) with 6(b) of the

Grain Futures Act whereas the case at bar

involves the comparison of 12 USC Section

93(a) with 93(b). In both comparisons,

subsection (a) contains "past tense

language" whereas subsection (b) contains

"present tense language." The Seventh

Circuit held that to impose "past tense

liability" under’ the "present tense

language" would constitute the "usurping

of the function of Congress." The Seventh

Circuit stated:

"The determination of the appeal,

therefore, turns upon the use of the

words "is violating" and "is attempting

to manipulate" in said section.

Respondents argue that although the

statute uses the present tense, it

should be so construed as to include

past transactions. A rather strong and

persuasive argument is made in favor of

the wisdom of such a construction

without which the power to deal with an

offender is almost nil. We are,

however, required to construe the

statute,-not to pass upon its purposes,

but upon its wording.

Support for limiting the

construction of the words so as to

exclude instances where the violation

has occurred may be found in section

6(a) (7 U.S.C.A. Sec. 8). There,

referring to the failure of the board

of trade to comply with the

requirements of the Act, we find the

words "has failed or is failing" to

comply with "any of the above

requirements." What effect then must

we give to the language of section 6(b)

where the words "has failed" are

omitted?

It is admittedly rather difficult to

understand why Congress would, when

dealing with the punishment of a Board,

include past as well as- present

violations, whereas in section 6(b)

when dealing with the punishment of the

individual trader, it provides for

punishment only when such person "is

violating" or "is attempting to

manipulate the market." ...

We are not, however, persuaded that

the words of the statute here used can

or should be so stretched as to include

past violations which were committed

and completed two years before the

complaint was filed. ...

While respondents’ counsel has ably

argued that the commission should have

the power to suspend for past

transgressions and without such

authority the section is sterile-yet

they have not met the stubborn and

inescapable fact that Congress has

spoken in two successive sections. In

one it expressly included past as well

as present violations and in the next

section specified only existing

violations as grounds for suspension.

To extend the latter section to the

breadth of the former would be usurping

the function of Congress." Cutten v.

Wallace, supra., at p. 142-144.

In comparison to the case at bar, Section

12 U.S.C. 93(a) uses the words

participated and assented. Whereas, the

very next subparagraph, Section 93(b) uses

the present tense:

participating, violates, continues, ...

causing, bringing about, participating in,

counseling, or aiding or abetting a

violation." 93(b) and 1818(i)(2)(i),

(underling added).

Both in Cutten, supra., and the case at

bar, the precedent is binding, and the

legal reasoning is equally compelling.

(The Seventh Circuit opinion in the case

at bar does not refer to its own precedent

in Cutten v. Wallace).

Further reinforcing this legal

reasoning, this Court stated:

"Congress could have phrased its

requirement in language that looked to

the past ("to have violated"), but it

did not choose this readily available

option." Gwaltney, 108 S Ct at page

381.

The U.S. Supreme Court recited the

contention of the prevailing party in

Gwaltney at p. 380, paragraph 2:

"Gwaltney argued that the

language of Sec. $0586(a),

»-+. requires that a defendant be

violating the Act at the time of

suit. Gwaltney urged the District

Court to adopt the analysis of the

Fifth Circuit in Hamker v. Diamond

Shamrock Chemical Co., 756 F2d 392

(1985), which held that "a complaint

brought under [Sec. 505] must allege

a violation occurring at the time

the complaint is filed.” 716., et

395. Gwaltney contended that

because its last recorded violation

occurred several weeks before

respondents filed their complaint,

the District Court lacked

subject-matter jurisdiction over

respondents’ action.” (Gwaltney,

supra., at page 380, underlining

added). ees

Moreover, Congress has

demonstrated in yet other statutory

provisions that it knows how to

avoid this prospective implication

by using language that explicitly

targets wholly past violations.”

Gwaltney, supra., at p. 381,

underlining added.

The above stated contention is identical

to the contention of the directors in the

case at bar. The statutory language bars

imposition of civil money penalties for

past acts.

2. Conclusor inding of ambiguity;

misquote of Supreme Court’s opinion. The

Court below held that the statutory

language was “ambiguous,” thus opening the

door to interpreting the intent of

Congress. First, the directors

strenuously argue that there is no

ambiguity in the tense of the language

contained in the statute, nor is there any

ambiguity that the preceding section of

law (93(a)) is written in the "past tense"

evidencing that Congress knows how to

write in both the past and present tense.

The Court’s conclusory statement that

these words are ambiguous is directly

contrary to their earlier interpretation

of the same language and analysis in

Cutten v. Wallace, supra. The directors

urge that the finding of "ambiguity" in

the language is a goal oriented conclusion

which contradicts binding rules of

statutory construction that clearly apply.

Attempting to justify an “ambiguity,”

the Court below makes the conclusory

statement that "the language in question

is not so clear that it can support only

the Directors’ interpretation." (920 F2d

at 1357). In a footnote on that page, the

Court below misquoted the Supreme Court’s

opinion. The Seventh Circuit opinion

states in the footnote:

"Nonetheless, in dicta, the Court

noted that "it is little questioned

that the Administrator may bring

enforcement actions to recover civil

penalties for wholly past violations.”

(920 F2d at 1357).

The actual language of the opinion does

not end with a period at that point. The

opinion in its entirety states:

"Because it is little questioned

that the Administrator may bring

enforcement actions to recover civil

penalties for wholly past violations,

respondents contend, the parallel

language of Sec. 309(a) and Sec. 505(a

must mean that citizens too ma

maintain such actions.

Although this argument has some

initial plausibility, it cannot

withstand close scrutiny and comparison

of the two statutory provisions."

(Gwaltney, supra., at 108 S Ct 381-2,

underling and emphasis added).

Thus, rather than being the holding of the

Supreme Court, the quoted section in the

Abercrombie footnote was merely the

contention by the respondents which was

rejected. (In addition, please note that

the authority of the Administrator was

never briefed in Gwaltney).

3. Pervasive use of the present tense.

The opinion below states:

"As this court noted in Abercrombie

I, the Directors’ reading of the

statutory language can be characterized

as “reasonable.” 833 F2d at 676. Use

of the present tense verbs throughout

the subsection in question can be read

as evidencing a congressional intent

"to emphasize that Sec. 1818 provides

a daily penalty for continuing

violations" only, not for past

violations. (Abercrombie II, 920 F2d

at 1357).

Similarly, this Court in Gwaltney, supra.,

looked to the tense of the verbs in its

statutory construction:

"One of the most striking indicia

of the prospective orientation of

the citizen suit is the pervasive

use of the present tense.”

Gwaltney, supra., at p. 382,

(underlining added).

There is no past tense language at all in

12 USC 93(b) or 1818(i)(2)(i); there is a

pervasive use of the present tense.

4. This decision requires one _ to

ignore words in the Legislative history.

This decision re-writes the legislative

history so that key prospective terms must

be completely ignored. The court below

recites the purpose of the civil money

penalties from the legislative history to

"prevent or correct" violations. (920 F2d

at 1358). There is no way to prevent or

correct "past acts.” The lower Court’s

decision requires the striking of those

words from the legislative history. The

legislative history does not say the

purpose is to "punish for past acts;" it

says to "prevent or correct" -

prospective.

Another element contained in the

legislative history of 12 USC

1818(i)(2)(i), is the word "cure:"

"The combination of those powers

plus the civil money penalty provisions

gives the agencies the power they need

to cure unsafe or unsound conditions

and to stop violations of laws by

holding companies.

-+.- This latter civil money penalty

provision should be particularly

helpful in curing unsound or problem

Situations once they have arisen ...”"

S.Rep. 95-323 (1977) at Pp. 9.

underlining added.

If the civil money penalties were intended

to apply to "past acts," then there would

be no need to refer to the "curing" of

acts which had already been terminated

(past acts). Further, if the past acts

were already "stopped," there would be no

need to use the words "to stop violations”

in the legislative history. (The Court

below mis-stated the directors’ argument

on “cure." We have never argued that the

Notice of Assessment must be suspended to

allow for a cure. Our argument is as

stated above.

The "self-enforcing" effect stated in

the legislative history (Id.) means that

once the Notice of Assessment is issued,

the directors will not wait for hearings

because they see daily penalties accruing,

so they will "stop" the violations by

"themselves" to avoid daily penalties. A

"self-enforcing effect" is prospective.

5. Amended statute, in pari materia,

mandates statutory construction of prior

act as barring liability for past acts.

The law was amended. It did not remain

the same. The Court below recites the

amendment on page 1359. Under the rules

of statutory construction, the subsequent

statute which bars liability against these

directors is the same binding construction

that applies to the original statute, the

statutes being in pari materia.

Under the original law, there was no

wording at all that permitted liability

for past acts; in the amended law, which

is in pari materia in all other respects,

there is a clarification of the extent of

"past acts" liability. The liability for

"past acts" goes back only to

after the completion of the last report

of examination ... occurring before the

date of the enactment of this Act.”

(See opinion below, 920 F2d at p. 1359,

(2)).

The Congress specifically addressed the

issue of past tense liability, and

narrowly confined it to circumstances that

would not apply to these directors. The

Court below admits that even the new law

would not impose liability on these

directors in this case:

"Although this retroactive provision

would not apply to the conduct in this

case, this provision does indicate that

Congress did not intend to attach

prospective-only effect to the present

tense language in the statute.” (920

F2d at p. 1359, underlining added).

Had Congress intended to impose

liability for all past acts, the new

statute would have included such past

tense liability within the language of the

amendment that dealt with the extent of

past acts liability - but it did not. The

new statute definitely prohibits the kind

of past tense liability imposed under the

case at bar, under the rules of statutory

construction for statutes in pari materia.

In Alexander v. Alexandria, 5 Cranch l,

3 L.Ed. 19 (1809) the rule of statutory

construction for statutes in pari materia

was enunciated:

",..acts in pari materia are to be

construed together as forming one act.

If in a subsequent clause of the same

act provisions are introduced which

show the sense in which the legislature

employed doubtful phrases previously

used, that sense is to be adopted in

construing those phrases.

Consequently, if a subsequent act on

the same subject affords complete

demonstration of the legislative sense

of its own language, the rule which has

been stated, requiring that the

subsequent should be incorporated into

the foregoing act, is a direction to

courts in expounding the provisions of

the law." (Id., 3 L Ed at p. 21).

The binding rule of statutory

construction was reiterated in United

States v. Freeman, 3 How 556, 11 L.Ed 724

(1845):

a 3 a thing contained in a

subsequent statute, be within the

reason of a former statute, it shall be

taken to be within the meaning of that

statute (Lord Raym., 1028); and if it

can be gathered from a_ subsequent

statute in pari materia, what meaning

the Legislature attached to the words

of a former statute, they will amount

to a legislative declaration of its

meaning, and will govern the

construction of the first statute.”

Id., 11 L Ed at p. 728.

In United States v. Montgomery Ward &

Co., 150 F2d 369, the rule of statutory

construction is stated:

""Unless the context indicates

otherwise, words and phrases in a

provision that were used in a prior act

pertaining to the same subject matter

will be construed to be used in the

same sense." Section 5201, Sutherland,

on Statutory Construction.” (74... at

p. 376).

"More recently, in United States v.

Stewart, 311 U.S. 60, 61 S.Ct. 102,

105, 85 L.Ed. 40, the court said: "It

is clear that ‘all acts in pari materia

are to be taken together, as if they

were one law.’ ... That these two acts

are in pari materia is plain. Both

deal with precisely the same subject

matter ***, The later act can

therefore be regarded as a legislative

interpretation of the earlier act..."

(p. 376).

"... @ rather heavy load rests on

him who would give different meanings

to the same word or the same phrase ...

in Acts which are in pari materia with

each other." (Id., at 377).

In Garner v. Louisiana, 368 US 157, 7 L

Ed.2d 207, 82 S Ct 248 (1961), it was

said:

"Shortly after the events for which the

petitioners were arrested took place,

the legislature amended its disturbance

of the peace statute in an obvious

attempt to reach the type of activity

involved in these cases." (Id., at p.

216).

In the case at bar, the Congress amended

its statute to reach "past acts”

liability, and Congress added restricted

liability for past acts which would have

excluded liability for these directors.

The fact that the statute was amended to

address the critical issue and declined to

impose liability as sought by the OCC is

a binding rule of statutory construction

on the courts.

6. The "Notice of Assessment” is a

document mandated by procedural due

process; it is not gratuitous. In oral

argument in Abercrombie J] (833 F2d 676),

in describing the "Notice of Assessment”

initiating the administrative process,

Circuit Judge Manion coined the phrase

"Procedural Due Process Notice Date." It

is an apt description. It initiates the

civil money penalty process. It is the

’ '

sole document which recites "violations.'

The Court below stated:

"The banker under a cease and desist

order operates with the knowledge that

any deviation from that order ... will

result in a significant penalty -

whether the authorities discover the

violation immediately or later." (920

F2d at 1359).

There are two fatal defects to the

argument that the C&D Order constitutes

the required "Notice": 1) the C&D Order

does not allege "violations" and 2) if the

C&D Order constitutes the required

"Notice" then the actual "Notice of

Assessment" is rendered gratuitous.

In Gwaltney, this Court rejected the

idea of a "gratuitous" notice:

"If we assume, as respondents urge,

that citizen suits may target wholly

past violations, the requirement of

notice to the alleged violator becomes

gratuitous." (Gwaltney, at p. 382, 3).

As in Gwaltney, supra., the "Notice of

Assessment" is not a gratuitous act. It

is intended as the Notice to directors to

stop or cure the violation immediately or

face daily penalties, and it is the

Procedural Due Process Notice which is the

sole charging document. The Court’s

statement below means that the C&D Order

is a charging document which it is not,

and if it were upheld, would render the

actual "Notice of Assessment" gratuitous

in contravention of Gwaltney. The Court

below recited that the "days of

violations" were required to be produced

(see 920 F2d 1355). The civil money

penalties were based on those "days" from

the specified articles which were all

concluded by April 8, 1985 (Id.), with the

Notice of Assessment issued on the Due

Process Notice Date of October 25, 1985.

Liability for violations which are past

acts must look to other enforcement laws;

there is no liability for past acts under

the "present tense" language of 12 USC

93(b) and 12 USC 1818(i)(2(i).

REASONS FOR GRANTING THE PETITION

The reasons for granting this Petition

are as follows:

I. The decision below violates

existing precedent from this Supreme

Court, (Gwaltney, supra.) and misquotes

the rejected argument of a party in that

case as if it were the Court’s holding.

The opinion below is Plain Error.

Further, to allow the misquoted opinion to

stand uncorrected could cause an

“avalanche of errors" in other courts.

II. The opinion below is contrary to

Rules of statutory construction. The

language in the statute is clear and

unambiguous. Further, the rules of

statutory construction require strict

construction of penal statutes. This

opinion re-writes "past tense" language

into a statute devoid of such language.

ItI. This opinion is contrary to the

Seventh Circuit’s own binding precedent in

Cutten v. Wallace, supra. In addition to

its strict construction of present tense

language, the precedent is on point in

that in both statutes analyzed, subsection

(a) uses the past tense while subsection

(b) uses the present tense - confirming

that Congress knows how to select the

appropriate tense.

IV. The opinion below requires

legislative history to be ignored. The

expressed statutory purpose “to prevent

and correct;" cannot apply to past acts.

Other terms in the legislative history

such as to "cure” and to "stop" violations

have no meaning under this ruling.

Vv. The opinion below imposes a

judicial construction on the re-enacted

statute (FIRREA, 1989 - see 920 F2d 1359)

authorizing civil money penalties for past

acts beyond the narrow and limited scope

specifically recited in that law.

VI. The opinion below is contrary to

the rules of statutory construction for

statutes in pari materia.

VII. This ruling denies procedural due

process to bank directors who first learn

that "daily penalties” are accruing only

by virtue of the "Notice of Assessment."

CONCLUSION

For the foregoing reasons, a writ of

certiorari should issue to review the

judgment and opinion of the United States

Court of Appeals for the Seventh Circuit.

DATED: April 22, 1991.

Respectfully submitted,

Wayne Hartke, Hartke & Hartke

eres EET

Attorney for Petitioners

Certificate of Service

I hereby certify that Ja true and

correct copy of the foregoing Petition for

Writ of Certiorari was mailed, certified

mail, return receipt requested to Mr. Jeff

Gillespie, Office of the Comptroller of

the Currency, 490 L’Enfant Plaza, S.W.,

Washington, D. C. 20219 on this 22nd day

of April, 1991.

Way Hartke

APPENDIX A

MANLEY ABERCROMBIE, ROBERT @Q. CALLOWAY,

RICHARD F. ECKEL, DONALD E. HEDRICK, and

E. WESTON SLOAN,

Petitioners-Appellants,

ROBERT L. CLARKE,

COMPTROLLER OF THE CURRENCY,

Respondent-Appellee.

Appeal No. 89-2407

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Decided December 26, 1990

Rehearing and Rehearing En Banc

Denied January 23, 1991.

Comptroller of Currency assessed civil

money penalties against bank directors for

past violations of cease and desist order.

Directors appealed. The Court of Appeals,

Ripple, Circuit Judge, held that (1)

Comptroller had legal authority to assess

civil money penalties for past violations

of cease and desist orders; (2) statute

did not restrict assessment of penalties

only to continuing violations; (3)

assessment for violations which occurred

prior to issuance of notice was not

arbitrary; and (4) Comptroller’s

determination that gravity of violations

justified civil money penalties was

supported by substantial evidence.

Affirmed.

The petitioners {referred to

collectively as the Directors) served

during the relevant period as directors of

the Rushville National Bank of Rushville,

Indiana (Bank). They seek review of a

decision of the Comptroller of the

Currency (Comptroller) that assessed civil

money penalties against them for

violations of cease and desist orders.

For the following reasons, we affirm the

decision of the Comptroller.

I BACKGROUND

A. Statutory authority

The Comptroller is authorized to order

banks and their directors to cease and

desist from any violations of law or

"unsafe or unsound practice." 12 U.S.C.

Sec. 1818(b)(1). Such cease and desist

orders may be imposed by consent or may be

mandated after a hearing. Id. The

Comptroller has discretionary authority to

seek enforcement of cease and desist

orders in actions brought in federal

district courts, id. Sec. 1818(i)(1), or

to impose civil money penalties (for

violation of such orders, id. Sec.

1818(i)(2). For the period in question,

the provision authorizing civil money

penalties read in pertinent part:

Any insured bank which violates or any

officer, director, employee, agent, or

other person participating in the

conduct of the affairs of such a bank

who violates the terms of any order

which has become final and was issued

pursuant to subsection (b), (c), or (s)

of this section, shall forfeit and pay

@ civil penalty of not more than $1,000

per day for each day during which such

violation continues... As used in this

section, the term "violates" includes

without any limitation any action

(alone or with another or others) for

or toward causing, bringing about,

participating in, counseling, or aiding

or abetting a violation.

Id. Sec. 1818(i)(2)(i ).1 The amount of

the penalty was to reflect the sizé of

financial resources and good faith of the

insured bank or person’. charged, the

gravity of the violation, the history of

previous violations, and such other

matters as justice may require." Id. Sec.

1Subsequent to the events involved in

this case, Congress amended section 1818

to provide for larger daily civil money

penalties. See Financial Institutions

Reform, Recovery, and Enforcement Act of

1989, Pub.L. No. 101-73, Sec. 907(a), 103

Stat. 183, 462-64 (codified at 12 U.S.C.A.

Sec. 1818(i)(2) (West 1989). Unless

otherwise noted, all references to section

1818 in the text are to the version in

effect during the relevant period.

| 1818(i)(2)(ii).

| The statute also set out certain

procedural requirements. It required the

Comptroller to issue a written notice, id.

Sec. 1818(i)(2)(i), and permitted those

receiving such notice to request an

administrative hearing, id. Sec.

1818(i)(2(iii). After such a hearing, the

Comptroller made a final decision with

respect to penalties. Those against whom

civil money penalties were assessed could

petition for review by the court of

appeals. Id. Sec. 1818(i)(2)(iv).

B. Procedural History

1. Initial administrative proceedings

Pursuant to 12 U.S.C. Sec. 1818(b)(1),

the Comptroller and the Bank, through the

Directors, entered into a cease and desist

order (Consent Order) on June 29, 1983.

This Consent Order consisted of sixteen

articles, which outlined steps that the

Directors were to take to improve the

safety and soundness of the Bank.

Additional examinations and meetings

between regulators and the Directors

followed. Regulators expressly warned the

Directors that they faced the assessment

of civil money penalties if they failed to

comply with the Consent Order. An amended

Consent Order was agreed to on June 19,

1984. Regulators continued to find

violations of the amended Consent Order.

For example, the January 31, 1985

examination found violations of ten

articles. The letter transmitting the

report of this evaluation to the Directors

2 The examination was actually

conducted in February and March 1985, but

is referred to as the January 31, 1985

examination because that is the final date

for which financial information was

evaluated.

again warned them that they faced the

assessment of civil money penalties.

Moreover, on June 21, 1985, each Director

was sent a letter notifying him that the

Comptroller was

considering whether to assess civil

money penalties against the individual

members of the Board of Directors...

Any such assessment will be founded

upon our determination that the

individual members of the Board of

Directors violated the provisions of 12

U.S.C. Sec. 1818 by failing to

substantially comply with the Order to

Cease and Desist dated June 29, 1983,

and its Amendment dated June 19, 1984.

Ex. OCC24 at 1.

The Comptroller issued a Notice of

Assessment of a Civil Money Penalty

against the Directors on October 25,

1985.2 The October 1985 Notice indicated

3 This notice was amended to correct

certain technical and typographical errors

on December 5, 1985. For the sake of

simplicity, we shall refer to the notices

collectively as the October 1985 Notice.

that the penalties were to be issued on

the basis of violations of the amended

Consent Order, as outlined in the report

of the January 31, 1985 examination. The

Notice did not specify on which days the

alleged violations occurred, nor did it

expressly indicate that the violations

were continuing as of the date of the

Notice. Director Hedrick was assessed a

civil money penalty of $15,000, and

Directors Abercrombie, Calloway, Eckel,

and Sloan were assessed $10,000 each.‘*

The Directors requested an

administrative hearing. Before the

hearing could be held, however, the

Directors filed a motion asking the

administrative law judge (ALJ) to dismiss

4 Director William F. Smith was also

assessed a penalty of $10,000. He settled

with the Comptroller and is not a party to

this appeal.

the proceedings. The Directors cited

Larimore v. Comptroller of Currency, 789

F2d 1244 (7th Cir. 1986)(en banc), for the

proposition that the Comptroller lacked

authority to impose personal liability

against them without filing suit in

district court. The Directors further

argued that civil money penalties could

not be assessed administratively for past

violations because the use of the present

tense verb "continues" in the penalty

clause of 12 U.S.C. Sec. 1818(i)(2)(i)5

"requires the violation to be in the

present tense." Respondent’s [sic] Br. in

Support of Their Motion to Dismiss at 2.

The ALJ denied this motion.

5 The relevant clause provided for a

"civil penalty of not more than $1,000 per

day for each day during which such

violation continues.” 18 ¥U.8.C. Sec.

1818(i)(2)(i).

ins

2. Judicial proceedings

The Directors then filed suit in

district court, seeking to enjoin the

administrative proceedings. See

Abercrombie v. Office of Comptroller of

Currency, 641 F.Supp. 598 (S.D.Ind.1986).

Again relying on Larimore and on their

contention that the present tense language

of subsection 1818(i)(2)(i) authorized the

Comptroller to impose civil money

penalties only for continuing violations,

the Directors argued that the agency

lacked jurisdiction to impose the

penalties. See id. at 601. The district

court concluded, however, that the court

lacked jurisdiction over the Directors’

action. Id. at 600. The court noted that

12 U.S.C. Sec. 1818(i)(1) strictly limited

the jurisdiction of courts to enjoin

administrative proceedings involving civil

money penalties. Id. Moreover, the

statute provided for review of final

agency action by the courts of appeal.

See id. (citing 12 U.S.C. Sec.

1818(1i)(2)(iv)). The district court

concluded that the Comptroller’s actions

in this case did not fall within a

judicially recognized exception to

subsection 1818(i)(1) becavse it did not

involve a "clear departure from statutory

authority." Id. (citing Groos Nat’] Bank

v. Comptroller of Currency, 573 F2d 889,

895 (5th Cir.1978).

This court affirmed. Abercrombie v.

Office of Comptroller of Currency, 833 F2d

672 (7th Cir.1987) (Abercrombie I). It

reasoned that the "‘statutory authority’

exception" to the limitation on federal

court jurisdiction found in subsection

1818(i)(1) applies only when the agency’s

action is "‘blatantly lawless[.]’" Id. at

675 (quoting Oestereich v. Selective Serv.

Sys. Local Bd. No. 11, 393 U.S. 233, 238,

89 S.Ct. 414, 416, 21 L.Ed.2d 402 (1968)).

For two reasons, this exception did not

apply. First without deciding the issue,

the court observed that this case "does

not appear to [be] control[led]" by

Larimore. Abercrombie I, 833 F2d at 676.

In Larimore, the court held that the

Comptroller’s authority to issue cease and

desist orders under 12 U.S.C. Sec.

1818(b)(1) did not authorize an order to

directors personally to indemnify a bank

for losses caused by violating statutory

limits on the amount of loans given to any

one borrower. 789 F2d at 1245. Such an

order amounted to the imposition of

"personal liability" against the

directors. Id. The court in Larimore

reasoned that such personal liability

could not be imposed administratively

under subsection 1818(b)(1), but only

judicially under 12 U.S.C. Sec. 93(a).§

Id. at 1256. In Abercrombie I, the court

observed that the nature of the remedy

involved in this case differed from the

damages at issue in Larimore:

Sectior 93(a) is a damages provision;

it provides that bank directors may be

liable to reimburse the bank or other

people the directors have injured by

violating banking laws. Section

1818(i)(2)(i), on the other hand, is a

penalty provision designed to punish

and deter violations of cease and

desist orders. The Comptroller need

6 This statute authorized the

Comptroller to sue in district court to

determine whether specified banking laws

have been violated and whether the

franchises of such banks should therefore

be forfeited. 12 U.S.C. Sec. 93(a). "And

in cases of such violation, every director

who participated in or assented to the

same shall be held liable in his personal

and individual capacity for all damages

which the association, its shareholders,

or any other person, shall have sustained

in consequence of such violation." Id.

)

—=

not prove damages to collect [civil

money penalties]. Here, unlike in

Larimore, the Comptroller does not seek

to have the directors reimburse the

bank or any other persons for losses

resulting from the directors’

activities. Instead, the Comptroller

simply seeks to impose a penalty on the

directors; the money the Comptroller

collects will go to the United States

Treasury, not to the Bank or any other

person. 12 U.S.C. Sec.

1818(i)(2)(vii).

Abercrombie I, 833 F2d at 676.

Second, the court_in Abercrombie I

concluded that the Comptroller’s

interpretation of his authority to assess

civil money penalties for past violations

under subsection 1818(i)(2) was not so

unreasonable as to be "*blatantly

lawless’". Id. at 675-77, The court made

clear that it was not deciding the merits

of the Directors’ complaint: "[WJe do not

determine whether the Comptroller actually

did or did not violate his statutory

authority; we hold only that any violation

was not a clear violation." Id at 675.

3. Additional administrative

proceedings

The case thus returned to the

administrative arena. On January 27,

1988, the October 1985 Notice was arended

to indicate that "[e]vidence and details

of the violations" were contained in

reports issued both before and after the

January 31, 1985 examination report.

Amended Notice at 1-2. On the first day

of the hearing, the ALJ insisted that the

specific days of the alleged violations be

identified. Tr. of Mar. 15, 1988 at 30-

31. A handwritten list was prepared,

indicating that the violations continued

at least until April 8, 1985.

The ALJ rejected the Directors’

contention that section 1818 authorized

civil money penalties only for continuing

violations. ALJ Recommended Decision and

Order at 113. The ALJ concluded that the

Consent Order had been violated, id. at

128, although he found no violation of two

articles in the Consent Order, id. at 124.

After taking into account the factors

found in subsection 1818(i)(2)(ii), the

ALJ recommended that the civil money

penalty assessments be reduced to $2,000

for Director Hedrick and $1,000 each for

Directors Abercrombie, Eckel, Calloway,

and Sloan. Id. at 130.

The Comptroller then issued the final

decision that is the basis of this appeal.

In re Hedrick, No. AA-EC-85-120 (Office of

the Comptroller of the Currency June 20,

1989) {hereinafter Comptroller’s

Decision]. The Comptroller concluded that

subsection 1818(i)(2)(i) “authorizes the

imposition of [civil money penalties] for

past, present, and continuing violations

of a cease and desist order.” Id. at 7.

The Comptroller reasoned that Congress’

goals of "discourag[ing] unsound practices

and [making] cease and desist orders self-

enforceable" could not be served if civil

money penalties were available only for

ongoing violations. Id. "Moreover,

institutions and individuals subject to an

order will be less likely to change their

conduct if they can violate the order

repeatedly and then correct the violations

when a Notice appears immingént." Id. at

7-8. The Comptroller also observed that

there was no statutory requirement that

those in violation of a cease and desist

order be given time to cure their

violations after the notice of assessment,

for cease and desist orders themselves are

"adequate notice." Id. at 10.

Furthermore, the Comptroller concluded

that the final assessment could be based

on evidence of violations not charged in

the original notice of assessment,

provided the notice was "amended, as was

done in this case," id at 13, to give the

Directors an opportunity to respond to the

true scope of the agency’s contentions.

Id. at 14.

The comptroller found the Directors in

violation of nine of the ten articles,

including one of the two articles for

which the ALJ had found no violations.’

7 The Comptroller concurred with the

ALJ’s conclusion that there was

insufficient evidence to establish a

violation of Article XVIII (requiring the

Directors to notify the agency of its

intended response to a consultant’s report

on expenses paid to insiders).

Comptroller’s Decision at 55-60. The

Comptroller rejected, however, the ALJ’s

conclusion that there was insufficient

evidence to find a violation of Article

XII (requiring the Directors to submit

detailed budget documents and operating

Id at 12. Violations of at least two

articles of the amended Consent Order

continued even after the October 1985

Notice. Id. at 18, 25. The Comptroller

noted the duration of some of the

violations:

While no precise count has been made of

the aggregate number of days that the

[Directors] were in violation, the

number exceeds 300 days just for

Article III (requiring documentation

for additional loans to criticized

borrowers). For Article XII (requiring

submission of budgets and operating

assumptions), the violation extended

--- at least ... 61 days.

Id. at 61-62 (citations omitted). While

not imposing the "hundreds of thousands of

dollars” of civil money penalties that the

Directors thus potentially faced, id at

62, the Comptroller disagreed somewhat

with the ALJ’s treatment of the statutory

factors found in 12 0. 8+. Sec.

assumptions). Id. at 41-45.

1818(i)(2)(ii). For example, the ALJ had

noted at least some indications of good

faith, ALJ Recommended Decision and Order

at 123, and had somewhat minimized the

gravity of the violations, id. at 124-25.

The Comptroller, in contrast, found the

Directors’ "good faith to be seriously

deficient," Comptroller’s Decision at 65,

and found the violations to be "more

serious" than had the ALJ, id at 67. The

Comptroller’s final assessment was $15,000

for Director Hedrick and $10,000 each for

Directors Abercrombie, Calloway, Eckel,

and Sloan. Id. at 70.

II ANALYSIS

[1] The basic question before us is

whether the Comptroller appropriately

determined that civil money penalties

could be assessed for past violations of

cease and desist orders. The Directors

contend that both the "present tense"

language of the statute and its

legislative history "require[ ] the

conclusion that [civil money penalties]

can only be assessed for violations which

are in the "present tense", existing at

the time the Directors are given the

"Notice of Assessment" of [civil money

penalties].” Petitioners’ Br. at 1-2

(emphasis in original). The Comptroller,

on the other hand, contends that the

language authorizing civil money penalties

of "not more than $1,000 per day for each

day during which such violation continues"

was "intended only as a limitation on the

maximue amount of the penalty and was not

intended to specify the types of

violations for which penalties could be

assessed.” Respondent’s' Br. at 27.

Alternatively, the Comptroller argues that

the language "is sufficiently ambiguous as

to permit that interpretation." Id.

Furthermore, he contends that legislative

history support his interpretation of the

statutory language.

A. Statutory construction

The essential task of a reviewing court

that faces an issue of statutory

construction is well established. We

first must determine "whether Congress has

directly spoken to the precise question at

issue. If the intent of Congress is

clear, that is the end of the matter; for

the court, as well as the agency, must

give effect to the unambiguously expressed

intent of Congress." Chevron U.S.A. v.

Natural Resources Defense Council, 467

U.S. 837, 842-43, 104 S.Ct. 2778, 2781, 81

L.Ed.2d 694 (1984). However, if the

administering agency fills a gap in the

statute, the court must determine "whether

the agency’s answer is based on a

permissible construction of the statute."

Id. at 843, 104 S.Ct. at 2782; see also

Fort Stewart Schools v. Federal Labor

Relations Auth., --- U.S. ---, 110 S.Ct.

2043, 2046, 109 L.Ed.2d 659 (1990);

Larimore v. Comptroller of Currency, 789

F2d 1244, 1248 (7th Cir., 1986)(en banc)

("agency’s- interpretation of its

authorizing statute need not be the only

permissible one in order for it to be

sustained").

We must begin with the language of the

statute itself. See Gwaltney of

Smithfield, Ltd. v. Chesapeake Bay Found.,

484 U.S. 49, 108 S.Ct. 376, 380, 98

L.Ed.2d 306 (1987). As this court noted

in Abercrombie I, the Directors’ reading

of the statutory language can be

characterized as "reasonable." 833 F2d at

676. Use of present tense verbs

throughout the subsection in question can

be read as evidencing a congressional

intent "to emphasize that Sec. 1818

provides a daily penalty for continuing

violations” only, not for past violations.

Id. On the other hand, the language in

question is not so clear that it can

support only the Directors’

interpretation. The Comptroller’s

interpretation of the statutory language

is also a reasonable reading.

8 8 In support of their argument

that the present tense language in the

statute precludes’ penalties for past

violations, the Directors have cited the

Supreme Court’s decision in Gwaltney of

Smithfield, Ltd. Vv. Chesapeake Bay

Foundation, 484 U.S. 49, 108 S.Ct. 376, 98

L.Ed.2d 306 (1987). The Court in Gwaltney

held that 33 U.S.C. Sec. 1365(a) (section

505(a) of the Clean Water Act), which

authorizes citizen suits against those

"alleged to be in violation,” does not

permit such suits "for wholly past

9 nA Me tle bah

Because the statutory language itself

is ambiguous, we must turn to other

violaticys." 484 U.S. at 64, 108 S.Ct. at

384-85. As one part of its rationale, the

Court noted: "One of the most striking

indicia of the prospective orientation of

the citizen suit is the pervasive use of

the present tense throughout Sec. 505."

Id at 59, 108 S.ct. 382.

Nonetheless, in dicta, the Court noted

that "it is little questioned that the

Administrator may bring enforcement

actions to recover civil penalties for

wholly past violations." Id. at 58, 108

S.Ct. at 381-82. Subsection 309(d) of the

Clean Water Act, which authorizes the

civil penalties for violations of that

statute, also uses present tense language

- although not the more graphic and

specific “alleged to be in violation.”

Any person who violates [specified

sections of the statute] and any person

who violates any order issued by the

Administrator under subsection (a) of this

section, shall be subject to a civil

penalty not to exceed $25,000 per day for

eavh violation.

33 U.S.C. Sec. 1319(d).

Consequently, we do not find Gwaltney

contrary to the Comptroller’s position.

Indeed, it is somewhat supportive of his

position. The language of subsection

309(d) of the Clean Water Act is virtuaily

identical to the language of 12 U.S.C.

SEc. 1818(i)(2)(i).

evidence of congressional intent.

Therefore, in order to determine whether

the Comptroller’s decision can be

affirmed, we shall next consider what the

legislative history and the structure of

the statute reveal about the role of the

= civil money penalty provision in the

statutory scheme.

The Comptroller was first authorized to

issue cease and desist orders against

individuals in 1978. See Financial

Institutions Regulatory and Interest Rate

Control Act of 1978 (FIRA), Pub.L. No. 95-

630, Sec. 107(a)(!), 92 Stat. 3641, 3649-

50. FIRA also authorized the assessment

of civil money penalties for violations of

such orders. Id. Sec. 107(e)(1), 92 Stat.

at 3660.9

9 FIRA also amended section 93 by

adding a civil money penalty provision,

which was similar to the provision of

To support their contention that civil

section 1818, for the violation of banking

laws, and regulations. See Pub.L. No. 95-

630, Sec. 103, 92 Stat. 3641, 3643-44

(1978) (codified as amended for the period

relevant to this case at 12 U.S.C. Sec.

93(b) and as further amended at 12

U.S.C.A. Sec. 93(b)(West Supp. 1990).

Subsection 93(b), unlike subsection 93(a),

does not include a requirement that the

Comptroller seek enforcement in the

courts. The court in Larimore v.

Comptroller of Currency, 789 F2d 1244 (7th

Cir.1986)(en banc), rejected the

Comptroller’s contention that section 93

thus provided an option to proceed

administratively or to sue in district

court when seeking to impose personal

liability on directors. However, as did

the court in Abercrombie I, 833 F2d at

876, we conclude that this case can be

distinguished from Larimore because of the

difference between the penalty provision

involved here and the damages involved in

Larimore. Moreover, subsequent to this

court’s decision in Larimore, Congress

amended the cease and desist provision of

section 1818 to authorize the Comptroller

to order indemnification in cases

involving unjust enrichment or

recklessness. See Financial Institutions

Reform, REcovery, and Enforcement Act of

1989, Pub.L. No. 101-73, Sec.

902(a)(1)(C), 103 Stat 183, 450 (codified

at 12 U.S.C.A. Sec. 1818(b)(6)(A)(West

1989).

money penalties may be imposed only for

continuing violations, the Directors point

to a number of phrases from a Senate

report on a bill that included provisions

that ultimately became part of FIRA. As

the Directors emphasize, the report

indicated that the purpose of civil money

penalties was "to help prevent or correct"

problems that threatened "the safety or

soundness" of banks. S.Rep No. 323, 95th

Cong., lst Sess. 16-17 (1977). Similarly,

civil money penalties were to serve as a

“deterrent,” id. at 8, and were to help

make cease and desist orders "self-

enforcing," id. at 9.!° The thrust of the

10 The Directors also contend that

the legislative history indicated that

civil money penalties could be imposed

administratively only if there existed no

other "‘effective remedy.‘" Petitioners’

Br. at 31 (quoting S.Rep. No 323, 95th

Cong., lst Sess. 17 (1977)). They further

contend that 12 U.S.C. Sec. 1818(i)(1),

which authorizes the Comptroller to seek

Directors’ interpretation of the

legislative history is that imposition of

civil money penalties for past violations

cannot serve these goals:

How does one "deter" past acts? There

is no way to deter past acts because

they have already occurred, and they

are not deterred because they occurred

and its [sic] all over with. No amount

of dollar penalty can deter a past act.

Petitioners’ Br. at 36.

The Directors correctly identify the

congressional concern with respect to the

safety and soundness of the banks. We do

not believe, however, that the legislative

enforcement of cease and desist orders in

district court, provided an aiternative

remedy and that the Comptroller thus was

compelled to proceed under that provision

or choose some other effective remedy

before resorting to the imposition of

civil money penalties under’ subsection

1818(i)(2). However, subsection

1818(i)(1) expressly gives the Comptroller

"discretion" to seek judicial enforcement,

and we decline to adopt the Directors’

reading of congressional intent.

history, read in its entirety, supports

the view that Congress saw no value in

punishing past violations of an extant

cease and desist order. Indeed, the same

report relied on by the Directors appears

to have contemplated the availability of

civil money penalties for past violations,

noting that they were "to be assessed from

the first day of the occurrence of any

violation." S.Rep. No. 323, 95th Cong.,

lst Sess. 8 (1977)(emphasis supplied). In

similar fashion, the House report noted a

need to deal with bank officers "whe have

committed abuses, wherever they may be

employed" at the time the Comptroller has

sufficient evidence to take action.

H.R.Rep. No. 1383, 95th Cong., 2d Sess.

240 (1978), U.S. Code Cong. & Admin.News

1978, pp. 9273, 9370 (minority

views)(emphasis supplied). Civil money

penalties also were made applicable only

to violations that occurred after

enactment of FIRA. See id. at 17-18. At

first glance, this element of the

legislative history might appear to

support the Directors’ contention.

However, if the committee understood the

present tense language of the statute to

apply only to continuing violations, there

would have been no reason to emphasize

that the provision was not retroactive.

Moreover, the Directors’ reading of the

legislative history ignores the general

deterrence function of civil money

penalties. Although the Directors in this

case can no longer be deterred from

violation the Consent Order for the period

in question, the potential of civil money

penalties could have a strong deterrent

effect on other bank officials and,

indeed, on these bank officials in the

future.

{2] More fundamentally, the Directors’

argument that violators of a cease and

desist order must be given an opportunity

to comply before they incur monetary

sanctions for their violation renders

ineffective the role of cease and desist

orders in the enforcement of the country’s

banking laws. If a penalty may be exacted

only after the violator once again has

endangered the health of the financial

institution by flouting the cease and

desist order, a good deal of the

enforcement potential of such orders is

lost. They are meant to have a "self-

enforcing” effect on the banking

community. Under the directors’

interpretation, it would be impossible to

fulfill the congressional expectation that

penalties be exacted "from the first day"

of. the violation. See S.Rep. No. 323,

95th Cong., lst Sess., 8-9 (1977). Civil

money penalties are designed to deter not

only willful violations but negligent ones

as well.!! The banker under a cease and

desist order operates with the knowledge

that any deviation from that order-

purposeful or otherwise-will result in a

significant penalty-whether the

authorities discover the violation

immediately or later.

Although the legislative history and

structure of FIRA does not prove

definitively that Congress intended civil

money penalties to be available for past

violations, we cannot say that the

11 Compare 12 U.S.C. Sec. 93(a)

(expressly proscribing knowing violations)

with id. SEc. 1818(i)(2)(1i) (indicating no

intent element).

Comptroller’s interpretation of

congressional intent is unreasonable.

Indeed, there is significant support for

his position. Consequently, we must

conclude that the Comptroller’s

interpretation of his statutory authority

is not impermissible. See Chevron U.S.A.

v. Natural Resources Defense Council, 467

U.S. 837, 843, 104 S.Ct. 2778, 2781, 81

L.Ed.2d 694 (1984).

Our conclusion to accept the

Comptroller’s reading of the statute is

bolstered by the re-enactment of civil

money penalty provisions in the Financial

Institutions Reform, Recovery, and

Enforcement Act of 1989, Pub.L. No. 101-

73, 103 Stat. 183 (FIRREA). It is

significant that these provisions continue

to use present tense language. }? See id.

SEc. 907(a), 103 Stat at 462-64 (codified

at 12 #U.S.C.A. Sec. 1818(i)(2)(West

1989)). Yet, it is abundantly clear that

Congress intended the present tense

language to apply to past acts. FIRREA

provides for retroactive application of

12 See NLRB v. Bell Aerospace Co.,

416 U.S. 267, 276, 94 8.Ct. 1767, 1762, 40

L.Ed.2d 134 (1974) ("[C]ongressional

failure to revise or repeal the agency’s

interpretation is persuasive evidence that

the interpretation is the one intended by

Congress. We have also recognized that

subsequent legislation declaring the

intent of an earlier statute is entitled

to significant weight.") (footnotes

omitted); see also Commodity Futures

Trading Comm’n v. Schor, 478 U.S. 833,

846, 106 S.Ct. 3245, 3254, 92 L.Ed.2d 675

(1986); Geldermann, Inc. v. Commodity

Futures Trading Comm’n, 836 F2d 310, 316

(7th Cir.1987) cert. denied, 488 U.S. 816,

109 S.Ct. 54, 102 L.Ed.2d 33 (1988). But

cf. International Bhd. of Teamsters v.

Daniel, 439 U.S. 551, 571, 99 S.Ct. 790,

802, 58 L.Ed.2d 808 (1979) (Burger, C.J.,

concurring)(understanding of draftsman of

amendment in 1970 “would have little, if

any bearing" on "construction of

definitions enacted in 1933 and 1934").

the new maximum penalties if the conduct

(1) is not already subject to a

notice (initiating an administrative

proceeding) ...; and

(2) occurred after the completion of

the last report of examination of the

institution involved by the appropriate

Federal banking agency ... occurring

before the date of the enactment of

this Act.

Id. Sec. 907(1), 103 Stat. at 476-77

(codified at 12 U.S.C.A. Sec. 93 note).

Although this retroactive provision would

not apply to the conduct in this case,

this provision does indicate that Congress

did not intend to attach prospective-only

effect to the present tense language in

the statute.

Moreover, section 905(a) of FIRREA

authorizes imposition of civil money

penalties against individuals even after

they have left the service of the covered

institution. Id. Sec. 905(a), 103 Stat.

459 (codified at 12 7.8.€ ha Sec.

1818(1i)(3). Thus, civil money penalties

now are certainly available for past

violations. The legislative ‘history of

this provision strongly suggest that it

was intended as a clarification of

existing authority. AS the report of the

House Banking, Finance and Urban Affairs

Committee stated: "This provision does

not create a new offense, but ery ee

when the banking agencies may initiate

enforcement actions against individuals."

H.R. Rep. No. 54(1I), 101st Cons. . lst

Sess. 393 (1989), U.S.Code Cong. &

AdminNews 1989, pp. 86, 189.

B. Application to This Case

[3] The Directors submit that

assessment for violations that occurred

before the October 1985 Notice gave them

no opportunity to cure their violations

and limit their liability. They

specifically object to imposition of civil

money penalties for violation of Article

I (requiring the filing of progress

reports on complfance with the Consent

Order every sixty days) because a bank

examiner had allegedly led them to believe

that they were in compliance with that

article. The Directors claim that they

believed Article I required a compliance

report only after the first sixty days,

but now acknowledge that they were not in

compliance with Article I. Petitioners’

Br. at 27. The Directors’ contention that

they were unfairly misled about Article I

is meritless. As the Comptroller noted,

"[t]he language of Article I plainly

requires the filing of reports ... every

sixty days." Comptroller’s Decision at

15.

More generally, although it is true

that the issuance of a notice of

assessment formally started the procedure

by which civil money penalties were

imposed,!3 between the time the Directors

agreed to the Consent Order and the

issuance of the formal notice, the

Directors were repeatedly notified that

they were not complying with the Consent

Order and that they faced the imposition

of civil money penalties. The Comptroller

did not lull the Directors into a false

sense of security by encouraging them to

believe that they were in full compliance

with the Consent Order and then impose

massive civil money penalties for past

violations. On this record, we cannot

conclude that the Comptroller acted

arbitrarily.

13° See 12 U.S.C. SEc. 1818(i)(2)(i).

[4] The Directors also press an

alleged inconsistency between the

Comptroller’s decision and a _ position

adopted by counsel for the Comptroller at

ay pre-hearing conference. At that

conference, counsel acknowledged that the

only charged violations were those

included in the report of the January 31,

1985 examination. Petitioners’ Br. at 43-

44 (citing Tr. of Feb. 26, 1988 at 46).

The Directors emphasize that the

conference occurred after the January 27,

1988 amendment of the October 1985 Notice

(which in turn incorporated the violations

in the January 31, 1985 report). Although

the focus of the Comptroller’s final

decision was the ten articles in the

October 1985 Notice, the decision also

reflected later violations of those same

articles. See Comptroller’s Decision at

18, 22.

{5] The Comptroller reasoned that the

January 27, 1988 amendment of the October

1985 Notice gave the Directors "'‘a

reasonable opportunity to know the claims

of the opposing party and to meet them.’"

Id. at 14 (quoting Morgan v. United

States, 304 U.S.1, 18, 58 S.Ct. 773, 776,

82 L.Ed. 1129 (1938)). As this court has

noted, "[i]t is, of course, well settled

that administrative pleadings are to be

liberally construed and amended." Brock

v. Dow Chem. U.S.A., 801 F2d 926, 930 (7th

Cir.1986); see also L.G. Balfour Co. v.

Federal Trade Comm’n, 442 F2d 1, 19 (7th

Cir.1971) ("There is no requirement that

A complaint in an administrative

proceeding enumerate precisely every event

to which a hearing examiner may finally

attach significance. The purpose of the

administrative complaint is to give the

responding party notice of the charges

against him."). Administrative pleadings

not only may be amended prior to a hearing

but also may be clarified during a

hearing. See Swift & Co. v. United

States, 393 F2d 247, 252 (7th Cir.1968).

Absent evidence that a party is misled by

an_administrative complaint, resulting inn

’

"prejudicial error,” we shall not reverse.

L.G. Balfour, 442 F2d at 19.

We believe that any inconsistency in

the position of the agency, as a result of

the statement of counsel at the pre-

hearing conference, produced no

unfairness. At the hearing itself, the

ALJ made clear that he was allowing the

introduction of evidence of continuing

violations:

I’ll tell you one of the reasons I’m

taking is if it’s true that present

tense violations are only the ones for

which civil money penalties may be

assessed, I would tend to believe that

[the Comptroller] is going to argue

that the bank is still violating.

Tr. of Mar. 23, 1988 at 62. Thus, the

Directors were aware that they potentially

faced liability for post-notice violations

of the ten articles originally specified

in the October 1985 Notice. On this

record, we cannot say that the Comptroller

committed prejudicial error.

[6] Finally, the Directors contend

that civil money penalties are unjustified

in this case because the violations for

which they were penalized "‘were not of

sufficient gravity to endanger the safety

of the bank.’” Petitioners’ Br. at 32

(quoting ALJ Recommended Decision and

Order at 128). However, earlier in the

same sentence that the Directors quote,

the ALJ did find that "the gravity of the

violations were deviations from fully safe

and sound banking practices.” ALJ

Recommended Decision and Order at 127.

Moreover, in context, this finding related

to one of the factors in 12 U.S.C. Sec.

1818(i)(2(ii), which concerned the

appropriate amount of the penalty, not the

propriety of assessing any penalty at all.

The Comptroller determined that the

gravity of the violations was more serious

than had the ALJ. See Comptroller’s

Decision at 67. The Directors have not

established that the Comptroller’s final

assessment was unsupported by substantial

evidence.

CONCLUSION

Finally, although we hold that the

Comptroller had the legal authority to

impose civil money penalties for actions

occurring between the issuance of the

cease and desist order and notice of

assessment, such authority, even under

this now-superseded statutory scheme, was

hardly without significant restraints.

The statute required that the Comptroller

tailor the penalty according to specific

criteria. No penalty was assessed without

a hearing, and, finally, the Comptroller’s

determination has been subject to review

in this court. As the House committee

report noted when these safeguards were

first proposed, they should assure that

the Comptroller and other agencies with

analogous civil money penalty powers "are

not arbitrary and capricious in their use

of civil money penalties." H.R.Rep. No.

1383, 95th Cong.., 2d Sess 18 (1978),

U.S.Code Cong. & Admin. News 1978, p.

9290.

For the foregoing reasons, the decision

of the Comptroller is affirmed.

AFFIRMED.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.