# Petition for Writ of Certiorari — Abercrombie v. Clarke

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1991
- **Citation:** 502 U.S. 809

## 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.

ii

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.

iv

Page

17

20

25

27

27

28

28

29

V. Violates Rules of statutory
construction for statutes in
pari materia.

VI. Violates procedural due

process rights of bank directors.

CONCLUSION

Page

29

29

30

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
vi

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

Ve

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,

10

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.

11

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

12

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

13

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

14

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).

15

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

16

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

17

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 ...”"

18

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,

19

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

20

"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

21

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

22

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

23

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

24

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

25

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

26

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

27

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

28

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

29

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

30

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,
Ve
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.

4

| 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

5

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

2

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.

6

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.

8

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

10

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

11

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

12

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.

13

)
—=

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

14

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

15

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

16

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.

17

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

18

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.

19

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

20

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

21

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

22

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

23

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

24

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).

25

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

26

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).

27

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

28

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.

29

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

30

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,

31

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

32

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).

33

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

34

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").

35

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.

36

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

38

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).

39

[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

40

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

41

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

42

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

44

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

45

of the Comptroller is affirmed.

AFFIRMED.

46

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_1964%3A1. Public record. Not legal advice.