Petition for Writ of Certiorari — Feitt v. Office of Thrift Supervision, Department of Treasury

§1-1,6 79

In The Ciinn

SUPREME COURT OF THE UNITED STATES

October Term, 1992

WARD H. FEITT,

Petitioner

vs.

OFFICE OF THRIFT SUPERVISION,

DEPARTMENT OF THE TREASURY,

Respondent

On Petition for Writ of Certiorari to

the United States Court of Appeals for

the Third Circuit

HAROLD GONDELMAN

Attorney for Petitioner

The Thirty-eighth Floor

One Oxford Centre

Pittsburgh, PA 15219

(412) 263-2000

QUESTION PRESENTED FOR REVIEW

Where the OTS seeks money damages

for failure of the president of a

viable and highly solvent savings

association to document’ monies

received from the savings associa-

tion for expense account’ and

business-related items, which funds

are to be paid to the savings

association, is the defendant

entitled to a jury trial under the

Seventh Amendment to the Constitu-

tion of the United States?

Can Congress deprive an Article III

court of jurisdiction to pass upon

a citizen’s constitutionally

protected right to a jury trial

where the issue is one purely of

law so that a citizen would not be

required to go through the

OO

expensive and prolonged adminis-

trative law proceedings before

asserting a violation of his

Seventh Amendment right to a jury

trial?

ii

TABLE OF CONTENTS Page

QUESTIONS PRESENTED FOR REVIEW..... i

TABLE OF CONTENTS ....ccccccccceeeee iii

AUTHORITIES CITED ....ccceceeeccccees Vv

PARTIES TO THE PROCEEDING .....-+2e--s 1

OPINIONS BELOW ....ccccvcevecececcces 1

JURISDICTION ......4.. cocccccce cecee 2

CONSTITUTIONAL PROVISIONS AND

STATUTES ..ccccccccvccsccees er 3

STATEMENT OF THE CASE ..-.-eceecccccees 4

REASONS FOR GRANTING THE WRIT ....--- 10

1. Where the OTS seeks money damages

for failure of Feitt to document

monies received from a viable and

highly solvent savings association

for expense account expenditures

and business-related items, is

Feitt entitled to a jury trial

under the Seventh Amendment to the

Constitution of the United States?

2. Can Congress deprive an Article III

court of jurisdiction to pass upon

a citizen’s constitutionally

protected right to a jury trial

where the issue is one purely of

law so that a citizen would not be

required to go through the expen-

sive and prolonged administrative

law proceedings before asserting a

violation of his Seventh Amendment

rights to a jury trial?

iii

TABLE OF CONTENTS (CONTINUED)

CONCLUSION ...... co cccccce ceecces 25

APPENDIX eeeeeweeveeveeeeeeeeeeeeeeeeeee la

Opinion, United States Court of

Appeals for the Third Circuit,

MOVGMDOE 126, . 1991 cccecececsecesesr la

Order, Sur Petition for Re-

hearing, December 27, 1991 ...... l3a

Order, Sur Petition for Panel

Rehearing, January 14, 1992 ..... 15a

Oral Opinion Transcript, United

States District Court for the

Western District of Pennsyl-

WE Setakees 4&0 a ee er 17a

Order of Court, United States

District Court for the Western

District of Pennsylvania, April

ge LS a he er 3la

TS Wii, © BBAROL IG) ois ice viwns 33a

13 U.S. BS TORRE CF) occ ce vccces 36a

SS BBE. © SREB IRD oc ccccccwes 40a

SS WB.G.. & RBABTAD EAS vk cc cacacdc. 42a

AUTHORITIES CITED

Amoco Oil Company v. Torcomian,

Jae Come weee tam CEE. T9G3) .cccccerves 14

Beard v. Braunstein, 914 F.2d 434

Cat Se Deh Ge ech eeeeeae cececscccs 28

Calabrese v. Collier Township Muni-

cipal Authority, 430 Pa. 289,

240 A.2da 544 (1968) ceeeoeeveev ee eeeeeeeeee 20,21

Commonwealth of Mass. v. Lyng,

S93 F.20 424 (1st Cir. 1990) ....ccsc- 24

Getty Oil Co. v. Ruckleshaus,

467 F.2d 349 (3d Cir. 1972).......20..- 15

Granfinanciera S.A. v. Nordberg,

109 S.Ct. 2782, 106 L.Ed. 2d 26

‘to a eee ee ae 13, 23

Larimore v. Controller of the

Currency, 789 F.2d 1244 at

aaee (7EM CEP. J9E6) cccccces eh wan 6 as 11

McGee v. United States, 402 U.S. 479

at 483, 91 S.Ct. 1565 at 1568

[Seta 608 bess “Thee h eS eRUC TERETE Tee 24

Northern Pipeline Construction v.

Marathon Pipeline Company, 102 S.Ct.

te ocak eek vec 14

North Penn Coal Company v. Snowden,

S Wreignt, 42 Pe. 468 (1862) ...cseess 21

Ross v. Bernard, 396 U.S. 531, 540,

Se SsGes Vos OC FIP CISTO) wccccsevercs 2

WwW

AUTHORITIES CITED (continued)

Solar Turbines, Inc. v. Seiff,

879 F.2d 1073 (3d Cir. 1989).........

Tull v. United States, 107 S.Ct. 1831

et 2699, 6863 U.B. GAR COOBP) 2ccceces

Statutes

23 U.B.G. @ ABABID) cscs choi eee ea ae

Tee eB are ere ee

22 U.8.C. | IBISCA) (2) cccccevesesssecer

Oe, Was EEE? occas 655 06640%00

CP ra Pe: Sek 6 660508006046480K0

eR

BS Gece SSRc DA aecceseveeseanceceneecses

i2 C.F.R. 509.32 TEVEELELELELELELE TLE

Constitution

Article III:

Bs a ee ce 6066488866 0440 6 OSS

CE ee ee ee ee ee

ee «Sg 6 6-6 6666660066840 6 8808 Oh

Miscellaneous

Democracy in America, Ch. 6, Henry Reeve

text as revised by Francis Bowen, 1845

72 Minn. L.Rev. 1035 at 1061 ..ccccccccces

Pomeroy’s Equity Jurisprudence, 5th Ed.,

VOl. 2, $§ 338, 342 cecccvscccsveseseses

1 Standard PA Practice, pp. xix, xxi .....

vi

PARTIES TO THE PROCEEDING

The parties to the proceeding are

as set forth in the caption in the court

below.

OPINIONS BELOW

The Court of Appeals cpinion, un-

unreported, is attached hereto as App.

l-a-12a). The decision is referenced in

the table of decisions without report-

ed opinions at 950 F.2d 721. The order

of court denying petition for rehearing,

suggestion for rehearing in banc filed

by petitioner was denied on December 27,

1991 (App. 13a). An order denying

appellee’s petition for rehearing before

the original panel was denied on January

14, 1992 (App. 15a).

The transcript of the oral opinion

of the district court is attached hereto

as App. 17a.

The order of the district court

entered April 2, 1991 is attached as

App. 31a.

JURISDICTION

This petition is brought pursuant

to 28 U.S.C. § 1254(1) to review the

order of the Court of Appeals for the

Third Circuit dated November 14, 1991.

Orders denying petitions for rehearing

were entered against petitioner on

December 27, 1991 (App. 13a) and against

respondent on January 14, 1992 (App.

15a). This petition is timely under the

provisions of Rule 13.4 of this Court,

which provides that a petition for writ

of certiorari to review a judgment of

the Court of Appeals for the Third

Circuit will be timely if filed within

ninety (90) days after the entry of

judgment and that the time runs from the

date of the denial of the petition for

—————

rehearing filed by any party.

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

Seventh Amendment to the

Constitution of the United States:

In suits at common law, where the

value of controversy shall exceed

twenty dollars, the right of trial

by jury shall be preserved, and no

fact tried by a jury, shall be

otherwise reexamined in any Court

of the United States, than

according to the rules of common

law.

Article III of the Constitution

of the United States:

Sections 1:

The judicial Power of the United

States shall be vested in one

Supreme Court and in such inferior

Courts as the Congress may from

time to time ordain and establish.

Section 2:

The judicial Power shall extend to

all cases, in Law, ana Equity,

arising under this Constitution,

the laws of the United States, and

treaties made.

Title 12 U.S.C. § 1818(b)(6) at

pages App. 334.

Title 12 U.S.C. § 1818(b)(7),

Authority to Limit Activities, at App.

36a.

12 U.S.C. § 1818(h)(2), Hearings

ané Judicial Review, at App. 40a.

12 U.S.C. § 1818(i)(1), App. 42a.

STATEMENT OF THE CASE

On January 3, 1991, the Office of

Thrift Supervision ("OTS") issued Order

No. AP 91-1. At the same time the OTS

issued a notice of charges and indicated

that a hearing would be held for an

order compelling Feitt to cease and

desist from being an officer and

director of Grandview Savings Associa-

tion ("Grandview") and to compel

affirmative relief such as restitution

and reimbursement for business expenses

charged to Grandview. The notice of

charges attempts to assess a money

damage award against Feitt in the sum of

$265,080.00 together with interest of

$163,218.00 for undocumented business

expenses dating back to 1982.

At the time of the issuance of the

order, Grandview was and still is a

highly solvent savings association.

Under the ex parte temporary cease

and desist order, Feitt was ordered to

no later than 12:00 noon on Friday,

January 18, 1991, provide security in

the amount of $469,639.00 to be complied

with in the following manner: (1) by

paying cash to Grandview; (2) by

establishing and maintaining an escrow

account in the amount of $469,639.00 at

a financial institution with an escrow

agent approved by the Director of OTS;

(3) by providing an irrevocable letter

of credit or fidelity bond from 4a

federally insured institution or an

insurer approved by the Director of OTS

and subject to terms and conditions as

approved by the Director of OTS, or by

providing other security deemed adequate

by the Director of OTS. The entity to

which payment was to be made was

Grandview Savings Association.

The order further requires Feitt to

submit, within fifteen days, his United

States and state tax returns for 1988

and 1989 and a financial statement

prepared and certified to by a nation-

ally recognized firm of certified public

accountants. Feitt is prohibited from

making expenditures in excess of

$2,000.00 or more, whether singularly or

through related transactions unless he

gives the OTS two full business days

“advance written notice.

\ ; :

; On January 15, 1991, Feitt filed a

complaint in the district court attach-

ing a copy of the proceedings before the

OTS and requesting a temporary stay and

demanding a hearing to determine whether

the OTS had jurisdiction personally over

Feitt to issue a personal judgment in

the amount of $428,298.00 or whether

Feitt is entitled to a jury trial so

that his property will not be taken

without due process of law and in

violation of the Seventh Amendment to

the Constitution of the United States

guaranteeing him a right to trial by

jury.

At a hearing in the district court,

Feitt introduced exhibits showing, inter

alia, that Bauer Financial Reports,

Inc., of Coral Gables, Florida, gave

Grandview its five-star rating stating

in its certificate that Grandview "is

one of the safest, credit worthy savings

associations in the United States." The

award was dated December, 1990. Also, a

Te

notice from IDC Financial Publishing,

Inc. was introduced into evidence that

Grandview had been rated among the top

fifteen percent of thrifts in the nation

and a letter dated December 27, 1988

from the Director of the Savings

Associations Bureau of the Commonwealth

of Pennsylvania was introduced con-

gratulating Grandview on the very fine

operating results and earning the rating

as one of the nation’s safest thrifts.

In addition, an exhibit dated

February 13, 1989 from the state joint

examiner was introduced, which advised

Grandview that its response to the 1988

joint federal-state audit was generally

satisfactory and the file covering “the

recent examination report has_ been

closed." A copy of that letter was sent

to the federal examiners who conducted

the joint examination.

The district court, without taking

any evidence other than the exhibits

above referred to, found that it had

jurisdiction but denied Feitt’s claim

for relief. (App- 17a-30a).

An appeal was taken to the Court of

Appeals for the Third Circuit, which

held that the district court did not

have jurisdiction and that Feitt would

have to exhaust his administrative

remedies before raising the issue before

the Court of Appeals for either the

District of Columbia Circuit or the

Third Circuit as provided by statute.

Feitt filed a petition for rehearing by

the court in banc and the OTS filed a

petition for rehearing. Both petitions

were denied, the OTS petition being

denied on January 14, 1992. This

petition for certiorari is submitted to

review the order of the Court of Appeals

for the Third Circuit.

REASONS FOR GRANTING THE WRIT

Where the OTS is seeking money

damages for failure of Feitt to

document monies received from a

viable and highly solvent savings

association for expense account

expenditures and business-related

items, is Feitt entitled to a jury

trial under the Seventh Amendment

to the Constitution of the United

States?

Can Congress deprive an Article III

court of jurisdiction to pass upon

a citizen’s constitutionally

protected right to a jury trial

where the issue is one purely of

law so that a citizen would not be

required to go through the expen-

Sive and prolonged administrative

law proceedings before asserting a

10

violation of his Seventh Amendment

right to a jury trial?

In Larimore v. Controller of the

Currency, 789 F.2d 1244 at 1256 (7th

Cir. 1986), the court held:

Thus, bank directors are to be

adjudged personally liable

only after receiving all of

the constitutional and legal

protections accorded every

citizen in a trial in the United

States District Court. These

protections would effectively be

abolished and the clear intent of

Section 93 would be cast aside if

12 U.S.C. § 1818(b) (1) were to be

interpreted as granting the

Controller the authority to act as

prosecutor, judge and jury and

unilaterally issue an order to an

individual director to indemnify

the bank.

In the instant proceeding, the order

issued by the OTS is signed by Timothy

Ryan, Director of the Office of Thrift

Supervision. Under the Administrative

Procedure Act governing the OTS, the

administrative law judge is without

jurisdiction to make any decision which

would constitute a final judgment in the

case. (12 CFR 509.49) Furthermore, the

administrative law judge only has the

power to make a recommended decision.

12 C.F.R. 509.4(2) The issue then goes

to the prosecutor, Timothy Ryan,

Director of the OTS. Under 12 CFR

509.31, the record is filed with the

Secretariat of the OTS and after filing

of exceptions and briefs,"the Secre-

tariat shall notify the parties in

writing that the case has been submitted

to the Office for final gecision.”

(Emphasis added) Under the Code of

Federal Regulations, the employees of

the office who are not engaged in any

way in the performance of investiga-

tory or adjudicatory functions in

connection with the proceeding, advise

and assist the Office in the

consideration of tne proceeding. The

12

ee

regulations then provide:

The Office shall consider the

recommended decision and the

whole record on review and

shall base its determination

thereon.

12 C.F.R. 509.32(a). It would appear

that the Code of Federal Regulations, by

referring to "the Office" is attempting

to distinguish the prosecutor from the

jury, a procedure condemned in Larimore.

This Court, in Granfinanciera S.A.

Vv ordberg, 109 S.Ct. 2782, 106 L.Ed.

2a 26 (1989), held that Congress lacks

the power to strip parties contesting

matters of private right of their

constitutional right to a jury trial.

The Court of Appeals for the Third

Circuit, in Beard v. Braunstein, 914

F.2d 434 (3d Cir. 1990), held:

"Where an action is simply for

. the recovery of a money

judgment, the action is one at

law. . . . Hence, a complete

remedy is available at law,

13

ne ae

and equity will not allow an action

in such a case."

The Third Circuit also in Amoco Oil :

Company _v. Torcomian, 722 F.2d 1099 (3d

Cir. 1983), held that equitable and j

legal claims when intertwined would not

defeat the Seventh Amendment right to a

jury trial. This Court, in Northern

Pipline _ Construction Vv. Marathon

Pipeline Company, 102 S.Ct. 2858 at 2878

(1982), held as follows:

No comparable justification

exists, however, when the right

being adjudicated is not of

congressional creation. In such a

situation, substantial inroads into

functions that have traditionally

been performed by the Judiciary

cannot be characterized merely as

incidental extensions of Congress’

power to define rights it has

created. Rather, such inroads

suggest unwarranted encroachments

upon the judicial power of the

United States, which our

Constitution reserves for Article

III, courts.

The Court of Appeals relied on

cases which have no bearing on the issue

14

presented on this petition for

certiorari. In both Getty Oi] Co. v.

Ruckleshaus, 467 F.2d 349 (3d Cir.

1972), and Solar Turbines, Inc. Vv.

Seiff, 879 F.2d 1073 (3d Cir. 1989), the

agency action involved rights created by

statute. The Clean Air Act expressly

set forth the procedural route and

timing for judicial review of

Environmental Protection Agency action.

The expertise of an agency in a specific

area such as clean air or occupational

safety or Social Security or the myriad

or other alphabetic creations of

Congress obviously do not have Seventh

Amendment constitutional protection

because they did not exist in Merry Old

England.

The suggestion’ by the Court of

Appeals that Feitt can be made whole

after taking an appeal from the OTS’

15

decision simply ignores the power which

the courts are abdicating in favor of

agency action. Credibility, just as it

is said of beauty, is in the eyes of the

beholder. Courts instruct juries on the

many things they may use to assist in

determining the credibility of

witnesses. Their demeanor on the stand;

their knowledge of the facts; their

interest in the case; and all of the

other intangible elements which one uses

in determining credibility. As stated

by the author in 71 Minn.L.Rev. 1035 at

1061:

That a defendant director has an

opportunity to appeal the agency

order to a court of appeals does

not neutralize the agency’s power.

On appeal a court will vacate the

order only if the factual findings

are not supported by substantial

evidence or if the order is

arbitrary and capricious. Thus the

appellant director, not the agency,

bears the burden of proof on

appeal. . . The traditional

16

deference courts afford to agency

discretion further compounds the

difficulty of overturning the

agency decision.

For a review of the prosecutor-

jury~judge-OTs decision, a court of

appeals may find substantial evidence

from facts which an impartial factfinder

seeing the witnesses, having the initial

determination of credibility might well

conclude is incredible. For example, in

this case the facts will show that

although there was 4 joint federal-state

examination of Grandview from 1982

through 1989, the examiners did not

charge Feitt with failure to document

business expenses deducted by the

association. The examiners’ reports

would indicate that Grandview retained a

higher capital ratio than its peers and

was in a highly solvent condition. The

evidence would show that the examiners

closed the file for 1988.

17

To attempt to prove to the bureauc-

racy overseeing Grandview that their

fellow employees did not find the

Grandview practices unsafe or unsound

for nine years is to ignore the facts of

life. To believe that Timothy Ryan, who

issued the cease and desist order and

the notice of charges, will now review

the evidence and exhibits without any

predisposition to upholding his stated

position or that of his staff as set

forth in the temporary cease and desist

order and notice of charges is to confer

on the head of a federal bureau an un-

realistic standard of impartiality. The

failure of Article III courts to decide

a constitutional issue and prohibit

Congress from legislating around

Larimore puts a severe dent in the

Seventh Amendment rights to trial by

jury and ignores the prophecy of Alexis

18

BK At ctl IIA wi CAE GEIS ne

we ee ee

deTouqueville when he observed the

operation of democracy in America:

Within these limits the power

vested in the American courts

of justice of pronouncing a

statute to be unconstitutional

forms one of the most

powerful barriers that

has ever been devised

against the tyranny of

political assemblies. 1

The Clean Air Act cases and the

other administrative agency creations of

Congress involve facts relating to the

technical aspects of the operation of an

agency. The creation of those rights

and duties by Congress allows the crea~

tion of the bureaucracy that administers

them subject to due process limitations.

This case does not involve the applica-

tion of technical facts. It involves an

allegation that business-related

1 Democracy in America, Ch. 6, Henry

Reeve text as revised by Francis

Bowen, 1845.

19

expenses were not documented. se

involves a suit for money damages, the

traditional adversarial proceeding

before a finder of fact -- a jury, not

an administrative law judge or director

of OTS.

It is obvious that Feitt is being

deprived of his right to a trial by

jury.

In Pennsylvania, the exercise of

equity jurisdiction by a court of common

pleas is unique. See Calabrese v.

Cc ie ownshi unici ity,

430 Pa. 289, 240 A.2d 544 (1968). As

stated in Calabrese, the courts of

common pleas in Pennsylvania recognized

and applied equitable principles as part

of the common law of the Commonwealth

but the courts neither possess nor

exercise the powers of a court of

chancery by reason of an existing public

prejudice against chancery courts. The

case refers to Pomeroy’s Eguity

Jurisprudence, 5th Ed., Vol. 1, §§ 338,

342, and l Standard Pa. Practice, PP-

xix, xxi. In a footnote, the Supreme

Court of Pennsylvania referred to the

apparent prejudice from the fact that a

trial in chancery con~ sisted of a trial

by a single judge as distinguished from

a trial by jury in a court of law and as

early as 1862 the Pennsylvania Supreme

Court had held in North Penn Coal

Company v. Snowden, 6 Wright, 42 Pa. 488

(1862), that the legislature had

constitutional power to transfer any

part of the jurisdiction of a court of

law such as a court of common pleas to a

court which proceeded according to the

course of a court of chancery. The

Calabrese case then holds that the

extent to which a court of common pleas

21

may exercise chancery powers lies within

the control of the legislature and not

from common law.

At the outset, therefore, its is

apparent that in Pennsylvania the

Seventh Amendment right to trial by jury

was not impinged by actions which could

have been brought in equity in other

jurisdictions.

In Tull _v. United States, 107 S.Ct.

1831 at 1839, 481 U.S. 412 (1987), this

Court held:

If legal claim is joined with

equitable claim, the right to

jury trial on the legal claim

inelual lj )

both claims remains intact.

Rights cannot be abridged by

characterizing the legal claim

as “incidental” to the equit-

able relief sought. .. Thus,

petitioner has a _ constitu-

tional right to a jury trial

to determine his liability on the

legal claims.

The Tull case involved an attempt by the

Environmental Protection Agency to im-

22

’ ob IE FE Sl SON

cece ED had na NTE” ie Ce eet a an SR oD ~

pose in excess of $22 million in damages

against Tull in a nonjury trial before

the district court. This Court held

that he was entitled to a jury trial.

Again, this Court in Granfinan-

ciera cogently stated:

"Legal claims are not magic~-

ally converted into equitable

issues by their presentation

to a court of equity. -- -

nor can Congress conjure away

the Seventh Amendment by

mandating that traditional

legal claims be brought there

or taken to an administrative

tribunal."

This Court has also held that the

expansion of adequate legal remedies

provided by the Federal Rules of Civil

Procedure necessarily affects the scope

of equity and that now under the Rules

there is only one action -- 4 civil

action -- in which all claims may be

joined and all remedies are available.

Ross v. Bernard, 396 U.S. 531, 540, 90

23

S.Ct. 733 at 739 (1970).

On the exhaustion of adminis-

trative remedies doctrine, the courts

have held that where agency proceed-

ings will be futile, the exhaustion

doctrine is not to be applied

inflexibly. McGee v. United States, 402

U.S. 479 at 483, 91 S.Ct. 1565 at 1568

(1971). A court is free to use its

discretion in applying the exhaustion of

administrative remedies doctrine and

when the various interests served pull

in the direction of exhaustion,

exhaustion is required but where they

pull in different directions analysis of

the particular case at hand is

necessary. See _ also, Commonwealth of

ass. V. ng, 893 F.2d 424 (1st Cir.

24

ss

a A a a a a,

CONCLUSION

Grandview is the real party in

interest on whose behalf OTS purports to

act. The money damages being sought by

the OTS are to be paid to Grandview.

The claim involves a factual determina-

tion on issues traditionally tried

before a jury. Even if expenses paid on

behalf of Feitt are not documented, an

impartial jury could find that as to

Grandview they were business related and

Grandview is not entitled to reimburse-

ment, restitution or money damages.

The issue of whether Feitt was

misled by the actions of co-employees of

the “Office” would disqualify co-

employees from sitting as impartial

jurors in the case. Under the statutory

scheme of things, the "Office" and co-

employees will be the final factfinders

and decision-makers, even without

25

conferring directly about the

proceedings.

The constitutional issue is raised

before an Article III court. There are

no agency areas of expertise required to

make the legal determination that Feitt

is entitled to a trial by jury. That

determination should be made now, with-

out the cumbersome and expensive

administrative law proceedings. These

administrative law proceedings do not

even allow the administrative law judge

to make the determination and to

terminate the OTS action on its merits.

The action of the Court of Appeals for

the Third Circuit should be reversed and

the matter remanded to the district

court to accord Feitt his right to trial

by jury.

Respectfully submitted,

HAROLD GONDELMAN

Attorney for Petitioner

26

peered le

APPENDIX

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 91-3198

WARD H. FEITT,

Appellant

vs.

OFFICE OF THRIFT SUPERVISION,

DEPARTMENT OF THE TREASURY

On Appeal From the United States

District Court for the Western

District of Pennsylvania

(D.C. Civil Action No. 91-0067)

District Judge: Donald E. Ziegler

Argued: September 3, 1991

BEFORE: STAPLETON, GREENBERG AND

ALDISERT, Circuit Judges

(Opinion Filed Nov. 14, 1991)

OPINION OF THE COURT

STAPLETON, Circuit Judge:

la

Until October 29, 1990, Ward Feitt

was a director of a Pittsburgh mutual

savings association, Grandview Savings

Association ("Grandview"). Grandview

holds net assets of approximately $20

million. Its financial condition is

generally sound but declining. Its

expenditures to cover employee expenses,

most of which were attributable to

Feitt, were five times those of

comparable institutions. Among the

business expenses Feitt allegedly

charged to Grandview were trips to

Acapulco and Costa Rica (where Grandview

has no business), memberships and bills

from at least five country, social

Clubs, over $3,000 worth of goods from

the pro shop at one country club, and

over $600 for his own cigars. Despite

being warned by federal and state

regulators in 1982, Feitt has also

2a

a

allegedly kept inadequate records of the

disbursements made to him and their

purposes.

As a result of a joint state-

federal investigation begun in 1989, the

Office of Thrift Supervision ("OTS") has

sought restitution on behalf of

Grandview for $265,080, plus $163,218 in

interest on that money, for a total of

$428.298. It has also sought a civil

money penalty of $88,893.

OTS sought this restitution by

filing on January 3, 1991, a "Notice of

charges and hearing for an order to

cease and desist and direct restitution

and other relief." That same day, OTS

issued an ex parte order of suspension

and a temporary cease and desist order.

The temporary order, among other

provisions, required Feitt to post

security by January 18, 1991, for the

3a

$428,298 claim against hin. The

proceeding on OTS’s restitution claim is

still pending before an administrative

law judge.

Feitt then brought this case in the

district court, seeking a declaratory

judgment on his various challenges to

OTS’s action and seeking a preliminary

injunction to stay the administrative

proceedings against him. OTS responded

by filing a motion for summary judgment

on Feitt’s claims and a petition for

summary enforcement of the temporary

cease and desist order. After a hearing

on April 2, 1991, the district court

issued an oral ruling. It held that it

had general federal question

jurisdiction over Feitt’s claims, but

found tnose claims without merit.

Therefore, the district court denied

Feitt’s application for a preliminary

4a

AE AE A Sod 0 hey os Sep NA OER tm na bee a

en ee

MENS Telit a a Poe eerie

0 ee

injunction and entered summary judgment

in favor of OTS on his claims. The

district court also granted OoTS’s

petition for summary enforcement of the

temporary cease and desist order. Feitt

filed a timely appeal from the final

judgment.

The district court had jurisdiction

over OTS’s petition for summary

enforcement of its temporary cease and

desist order pursuant to 12 U.S.C. §

1818(d). It also had jurisdiction over

Feitt’s challenge to that same order

pursuant to 12 U.S.C. § 1818(c)(2). As

will be discussed further below, 12

0.8.€. § 1818(i) eliminates any

jurisdiction the district court would

otherwise have had over Feitt’s other

Claims, and, therefore, no jurisdiction

existed over those claims. This court

has jurisdiction over an appeal from a

5a

final judgment of the district court

pursuant to 28 U.S.C. § 1291. This

court has plenary review of the district

court’s ruling on jurisdiction.

Title 12 U.S.C. § 1818(i)(1) states

in relevant part:

except as otherwise provided in

this section no court shall have

jurisdiction to affect by

injunction or otherwise the

issuance or enforcement of any

notice or order under this section,

or to review, modify, suspend,

terminate, or set aside such notice

or order.

Thus, the district court lacked juris-

diction over Feitt’s claims unless they

fell within one of the specific

exceptions contained elsewhere in §

1818.

Section 1818 does provide indivi-

duals such as Feitt with means to

challenge the actions of banking

agencies, but those means are specific

and limited. While an administrative

6a

odie tush aiiedil: Nines

proceeding is ongoing, Feitt may

challenge the temporary cease and desist

order in federal district court pursuant

to § 1818(c)(2). When a permanent cease

and desist order is issued, Feitt may

file a challenge to it in the

appropriate court of appeals pursuant to

§ 1818(h) (2). Section 1818 also

provides that banking agencies may

invoke the jurisdiction of the district

courts to enforce both their temporary

(§ 1818(d)) and their permanent (6§

1818(i)(1)) orders. As this court has

previously notes, "[t]o assure the speed

and efficiency of the administrative

scheme, judicial interference in the

proceedings is limited to these speci-

fied situations." astern Nationa ank

v. Conover, 786 F.2d 192, 193 (3d Cir.

1986) (per Curiam); accord Groos

National Bank v. Comptroller of

7a

Currency, 573 F.2d 889, 895 (5th Cir.

1978) ("section 1818(i) in terms removes

the courts jurisdiction to issue an

injunction affecting the regulatory

agency’s notice or order, except as

[expressly] provided in section 1881

proceedings and review.")

Feitt’s attempt to assert general

federal question jurisdiction in the

face of § 1818(i)’s prohibition is

unavailing. When faced with a similar

attempt to circumvent statutory

limitations on judicial review of agency

action involving the Clean Air Act, this

court held:

Because the Act explicitly provides

for review of certain actions and

explicitly denies review for

everything else, we cannot look

elsewhere for authority to justify

the district court’s review. vt § 4

Congress specifically designates a

forum for judicial review of

administrative action, such a forum

is exclusive." Getty Oil Co. v.

Ruckelshaus, 467 F.2d 349, 356 (3d

Cir. 1972), cert. denied, 409 U.S.

1125 (1973).

8a

Solar Turbines Inc. v. Seif, 879 F.2a

1073, 1077 (3d Cir. 1989).

Feitt’s attempt to enjoin the oTS

proceedings against him is precisely the

type of interference with regulatory

action that § 1818 was intended to

foreclose. Therefore, the district

court had jurisdiction only over the

parties’ contentions about the temporary

cease and desist order. Feitt’s

arguments that his Seventh Amendment

right to a jury trial is being violated

in the administrative proceeding and

that OTS’s claims are barred by estoppel

or laches are premature. If a permanent

cease and desist order is ultimately

entered against Feitt, he will have an

Opportunity to raise those arguments on

a direct appeal to a court of appeals

pursuant to § 1818(h)(2), and if no

order is ultimately entered, he will

9a

have no cause for complaint.

As we have noted, the district

court did have jurisdiction to entertain

Feitt’s attack on the cease and desist

order. More specifically, the district

court had the jurisdiction necessary to

entertain his claim that the require-

ment of a bond during the pendency of

the administrative proceeding 1/

violated both due process of law and the

statute authorizing OTS to issue cease

and desist orders. We conclude,

however, that this court no longer has

jurisdiction to hear that claim because

it is moot.

Following the filing of the notice

of appeal from the district court’s

2/

There are several other aspects of the

cease and desist order, but, as counsel

expressly confirmed at oral argument,

Feitt does not challenge the validity of

any provision of that order other than

the requirement of a bond.

10a

order enforcing the cease and desist

order, OTS filed a motion for an order

finding Feitt in contempt for failure to

file a bond. For reasons that do not

appear in the record, the district court

determined that Feitt’s failure to file

a bond did not constitute contempt of

its enforcement order and denied OTS’

motion. OTS’s time for appealing the

denial of its contempt application has

now run without a notice of appeal

having been filed.

Under the law of the case, Feitt,

as matters now stand, is not subject to

an enforceable obligation to file a bond

and OTS acknowledges that its adminis-

trative proceeding is going forward

without one. While it is conceivable

that changed circumstances in the future

may entitle OTS to ask the district

court for some further relief, we

lia

conclude that the issue between the

parties regarding the bond is now moot.

Accordingly, we decline to address

Feitt’s due process and statutory

arguments.

We will reverse the judgment of the

district court and remand with instruc-

tions to dismiss for want of jurisdic-

tion all of Feitt’s claims other than

his challenge to the validity of the

bond requirement of the cease and desist

order and to reinstate those portions of

its en.orcement order other than the

portion imposing that requirement.

TO THE CLERK:

Flease file the foregoing not for

publication opinion.

/s/ Walte . Stapleton

Circuit Judge

12a

eer a eT eee

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 91-3198

WARD H. FEITT,

Appellant

vs.

OFFICE OF THIRFT SUPERVISION,

DEPARTMENT OF THE TREASURY

2) ARING

BEFORE: SLOVITER, Chief Judge,

BECKER, STAPLETON, MANSMANN,

GREENBERG, HUTCHINSON,

SCIRICA, COWEN, NYGAARD,

ALITO, ROTH, and ALDISERT,

The petition for rehearing filed by

Appellant in the above-entitled case

having been submitted to the judges who

participated in the decision of this

Court and to all the other available

circuit judges of the circuit in regular

active service, and no judge who

13a

concurred in tne decision having asked

for rehearing, and a majority of the

circuit judges of the circuit in regular

active service not having voted for

rehearing by the court in banc, the

petition for rehearing is denied.

By the Court.

is/ Walter K. Stapleton

Dated: Dec 27 1991

14a

Se

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 91-3198

WARD H. FEITT,

Appellant

vs.

OFFICE OF THRIFT SUPERVISION,

DEPARTMENT OF THE TREASURY

e) ARING

BEFORE: STAPLETON, GREENBERG and

ALDISERT, Circuit Judges

The petition for rehearing filed by

appellee in the above-entitled case

having been submitted to the judges who

participated in the decision of this

court and no judge who concurred in the

decision having asked for rehearing, the

15a

petition for rehearing is denied.

By the Court,

/s/ Walter K. Stapleton

Circuit Judge

Dated: Jan. 14, 1992

RECEIVED AND FILED

Sally Mrvos

Clerk

16a

——————

APPENDIX

In the United States District Court for

the Western District of Pennsylvania

Civil Action

No. 91-0067

WARD H. FEITT

vs.

OFFICE OF THRIFT

SUPERVISION,

DEPARTMENT OF THE

TREASURY

THE COURT: Please be seated.

This case is entitled Ward H. Feitt

v. Timothy Ryan, Director of the Office

of Thrift Supervision, at Civil Action

No. 91.-67, and the following shall

constitute findings of fact and

conclusions of law:

i. This is a civil action for

injunctive relief, filed by Ward Feitt

against the Director of Thrift Super-

vision, to enjoin certain administrative

proceedings scheduled for April 30,

1991.

17a

2. Jurisdiction is predicated by

plaintiff on 28 USC Section 1331,

asserting that this Court has original

jurisdiction to enjoin the adminis-

trative proceedings, because the Finan-

cial Institutions Reform, Recovery and

Enforcement Act of 1989, as amended, 12

usc Section 1462, is unconstitutional as

applied, because the Act denies

plaintiff the Seventh Amendment right to

trial by jury.

3. The Court of Appeals for the

Third Circuit in First Jersey Securities

Vv. ergen, 605 F.2d 690, 694 (1979),

held that jurisdictional grants’ to

District Courts in cases arising under

the Constitution or laws do not mean

that jurisdiction may not be precluded

by another stature oor doctrine of

judicial administration. However, in

FDIC v. Mallen, 486 U.S. 239, 240

18a

i ld at, inl ey te tt se

(1987), the Supreme Court sustained the

District Court’s conclusion that it had

original jurisdiction and, therefore,

the power to determine the constitu-

tionality of the agency’s actions,

albeit in a different context. See,

also Groos National Bank v. Comptroller,

573 F.2d 889 (Fifth Circuit 1978).

4. We therefore will consider the

plaintiff’s motion for a preliminary

injunction and declaratory relief and

proceed to determine the question

whether plaintiff is likely to succeed

on the merits with respect to his claim

for injunctive relief.

S. We find no merit to Mr.

Feitt’s argument that he is likely to

succeed because Grandview is solvent and

apparently highly rated. The statute at

12 USC Section 1818(b)(1) authorizes the

Director to proceed against a person

19a

such as Mr. Feitt without reference to

whether he is currently a director or

officer and without reference to whether

the institution is solvent or insolvent.

See, also, Larimore _v. Comptroller of

Currency, 789 F.2d 1244, 1245 through -

46 (Seventh Circuit 1986).

6. Plaintiff relies on lLarimore

v. Comptroller for the proposition that

the Director is without authority to

seek any of the administrative remedies

at issue here, including the claim for

restitution in the sum of $428,298.

However, as defendant points. out,

Congress enacted Section 1818(b) (6) (1)

in 1989 for the express purpose of

overruling imore. 1989 Code

Congressional & Administrative News 86,

at 263 through 264.

T In Atlas Roofing Company v.

Occupational Safety and Health Review

Commission, 430 U.S. 442 (1977), the

plaintiffs claimed that their right to a

jury trial under the Seventh Amendment

was violated by a statutory scheme that

permitted the Secretary of Labor and

Occupational Health and Safety Review

Commission to determine whether

violations of the Occupational Safety

and Health Act had taken place and, if

they had, to issue abatement orders and

impose civil penalties. Rejecting the

plaintiffs’ contention, the Supreme

Court stated as follows, and here I

quote:

In sum, the cases discussed above

stand clearly for the proposition

that when Congress creates new

statutory ‘public rights,’ it may

assign their adjudication to an

administrative agency with which a

jury trial would be incompatible,

21a

without violating the Seventh

Amendment’s injunction that jury

trial is to be ‘preserved’ in

‘suits at common law.’ Congress is

not required to choke the already

crowded federal courts with new

types of litigation or prevented

from committing some new types of

litigation to administrative

agencies with some special

competence in the relevant filed.

This is the case even if the

Seventh Amendment would have

required a jury where the

adjudication of those rights is

assigned to a federal court of law

instead of an administrative

agency. ***

"The point is that the Seven

th Amendment was never intended to

establish a jury as the exclusive

22a

a a

é

§

F

4

.

2

:

mechanism for factfinding in civil

cases. It took the existing legal

order as it found it, and there is

little or no basis for concluding

that the Amendment should not be

interpreted to provide an

impenetrable barrier to adminis-

trative factfinding under otherwise

valid federal regulatory statutes.

We cannot conclude that the Amend-

ment rendered Congress powerless --

when it concluded that remedies

available in courts of law were

inadequate to cope with a problem

within Congress’ power to regulate

-- to create new public rights and

remedies by statute and commit

their enforcement, if it chose, to

a tribunal other than a court of

law -- such as an administrative

agency -- in which facts are not

found by juries."

23a

8. In Granfinanciera v.

Nordberg, 109 S.Ct. 2782 (1989), the

Court reaffirmed the holding of Atlas

Roofing by saying as follows:

"If a claim that is legal in nature

asserts a ‘public right’ ***, then

the Seventh Amendment does not

entitle the parties to a jury trial

if Congress assigns its adjudica-

tion to an administrative agency or

specialized court of equity. ***

"x*x* Those cases in: which

Congress may decline to provide

jury trials are ones’ involving

statutory rights that are integral

parts of a public regulatory scheme

and whose adjudication Congress has

assign- ed to an administrative

agency or specialized court of

equity."

24a

wt FO TT Te ee Ree a Tee ee Re aN Te ee ee

9. We find that Ward Feitt will

not likely succeed on the challenge to

administrative factfinding with regard

to the cease and desist order, the

notice of intention to remove and

prohibit plaintiff from participating in

the affairs of Grandview, the notice of

assessment, and the order that he

produce tax returns for 1988-89. and a

certified financial statement, and

personal records, and refrain from

transferring assets. The only remaining -

question is whether he will likely

succeed on the claim that the statutory

scheme abridges his constitutional right

to a jury trial on the restitution and

reimbursement claim of the Director in

the sum of $265,080, plus interest of

$163,218.

10. An order for restitution has

traditionally been considered equitable

25a

in nature rather than legal, although it

may involve the determination and return

of a sum. certain. Moreover, an

accounting and restitution are

recognized equitable rights and

remedies, and no Seventh Amendment right

is involved. We hold that restitution

from a fiduciary has traditionally been —

regarded as an equitable remedy, not a

legal one, and, therefore, Ward Feitt is

not entitled to a jury trial with regard

to the order of restitution. See

Restatement of Restitution and Unjust

Enrichment at 17, Proposed Final Draft

1936. It follows that plaintiff will

not likely succeed on the merits with

respect to this claim.

11. Tull v. United States, 481

U.S. 412 (1986), is not to the contrary.

There, the Court found that the claim

was legal in nature, and specifically

26a

distinguished the claim from one for

disgorgement of profits and restitution.

The instant action is for disgorgement

and restitution and, therefore, no

Seventh Amendment right is involved. It

is a remedy that is traditionally

incidental to injunctive relief and,

therefore, equitable in nature.

12. Beard v. Braunstein, 914 F.2d

434 (Third Circuit 1990), provides a

most comprehensive discuss- ion of the

problem. There, the Court discussed the

three-prong test of Granfinanciera and

found the claim for rent against the

debtor to be legal in nature. Applying

that test, we find as follows: (1) An

action for restitution against a

fiduciary is an equitable action,

traditionally tried by the courts equity

in England; (b) the remedy of

restitution is not clearly legal, and

27a

was not plainly and traditionally

resolved by the law side of the courts

at common law; (c) public rights are

involved here in this complex regulatory

schene, with a valid legislative

purpose; and (a) an action for

restitution is not a state law contract

action as in Beard v. Braunstein.

13. We also find that Ward Feitt

will not suffer irreparable harm. The

constitutional issues can be preserved

and raised in the Court of Appeals, as

provided by the statutory scheme,

following the administrative findings,

and the escrow and bonding requirements

are subject to review in this Court and

the Court of Appeals for reasonableness.

14. We hold that plaintiff has

failed to establish irreparable harm and

likely success on the merits and,

28a

therefore, the motion for a preliminary

injunction must be denied.

15. We find no merit to the

argument that the United States or the

Director is estopped from proceeding by

virtue of the findings of the state or

federal examiners in the various

examinations that took place over the

years.

16. Also pending before the Court

is the petition of the Director for

Summary enforcement of the temporary

orders, and a motion for’ summary

judgment. The motion for summary

judgment will be granted, because we

find, based on the papers of record,

that there are no genuine issues of

material fact.

A written order will i follow,

denying the motion of plaintiff for a

preliminary injunction and granting the

29a

Director’s motion for summary judgment.

We will also deny the request for the

plaintiff for declaratory relief,

because we find no_ constitutional

infirmity in the application of the

statute to Ward Feitt.

30a

APPENDIX

In The United States District Court

for the Western District cf

Pennsylvania

Ward H. Feitt,

Plaintiff-Respondent,

vs.

Timothy Ryan, Director of the

Office of Thrift Supervision,

Defendant-Petitioner

ORDER OF COURT

AND NOW, this 2nd day of April,

1991, in accordance with the findings of

fact and conclusions of law of record,

IT IS ORDERED that the motion of

plaintiff, Ward H. Feitt, for prelim-

inary injunction and declaratory relief

be and hereby is denied.

IT IS FURTHER ORDERED that the

motion of defendant, Timothy Ryan,

Director of Thrift Supervision, for

31la

summary judgment be and hereby is

granted.

/s/ Donald E. Ziegler

32a

APPENDIX

12 U.8.C.A. § 1818(b)

12 U.S.C.A. § 1818(b), cease and

desist proceedings, (6) affirmative

action to correct conditions resulting

from violations or practices provides as

follows:

The authority to issue an order

under this subsection and subsection (c)

of this section which requires an in-

sured depository institution or any

institution-affiliated party to take

affirmative action to correct any con-

ditions resulting from any violation or

practice with respect to which such

order is issued includes the authority

to require such depository institution

or such party to --

(A) make restitution or provide

reimbursement, indemnification, or

33a

guarantee against loss if --

(i) such depository institution or

such party was unjustly enriched in

connection with such violation or

practice; or

(ii) the violation or practice

involved a reckless disregard for the

law or any applicable regulations or

prior order of the appropriate Federal

banking agency;

(B) restrict the growth of the

institution;

(C) dispose of any loan or asset

involved;

(D) rescind agreements or contra-

cts; and

(E) employ qualified officers or

employees (who may be subject to ap-

proval by the appropriate Federal

banking agency at the direction of such

agency); and

34a

(F) take such other action as the

banking agency determines to be ap-

propriate.

35a

APPENDIZ

12 U.S.C. § 1818(b)(7), Authority to

Limit Activities, provides:

The authority to issue an order

under this subsection or subsection (c)

of this section includes the authority

to place limitations on the activities

or functions of an insured depository

institution or any institution-

affiliated party.

(c) Temporary cease-and-desist orders.

(1) whenever the appropriate Federal

banking agency shall determine that the

violation or threatened violation or the

unsafe or unsound practice or practices,

specified in the notice of charges

served upon the depository institution

or any institution-affiliated party

pursuant to paragraph (1) of subsection

(b) of this section, or the continuation

thereof, is likely to cause insolvency

or significant dissipation of assets or

earnings of the depository institution,

or is likely to weaken the condition of

the depository institution or otherwise

prejudice the interests of its deposi-

tors prior to the completion of the

proceedings conducted pursuant to

paragraph (1) of subsection (b) of this

section, the agency may issue a

temporary order requiring the depository

institution or such party to cease and

desist from any such violation or

practice and to take affirmative action

to prevent such insolvency, dissipation,

condition, or prejudice pending

completion of such proceedings. Such

order may include any requirement

authorized under subsection (b) (6) (b) of

this section. This order shall become

effective upon service upon the

37a

depository institution or such

institution-affiliated party and, unless

set aside, limited, or suspended by a

court in proceedings authorized by

paragraph (2) of this subsection, shall

remain effective and enforceable pending

the completion of the administrative

proceedings pursuant to such notice and

until such time as the agency shall

dismiss the charges specified in such

notice, or if a cease-and-desist order

is issued against the depository

institution or such party, until the

effective date of such order.

(2) Within ten days after the

depository institution concerned or any

institution-affiliated party has been

served with a temporary cease-and-desist

order, the depository institution or

such party may apply to _the United

States district court for the judicial

38a

district in which the home office of the

depository institution is located, or

the United States District Court for the

District of Columbia, for an injunction

setting aside, limiting, or suspending

the enforcement, operation, or

effectiveness of such order pending the

completion of the administrative

proceedings pursuant to the notice of

charges served upon the _ depository

institution or such party under

paragraph (1) of subsection (b) of this

section, and such court’ shall have

jurisdiction to issue such injunction.

39a

APPENDIZ

12 U.S.C. § 1818(h) (2), Hearings and

Judicial Review:

Any party to any proceeding under

paragraph (1) may obtain a review of any

order served pursuant to paragraph (1)

of this subsection (other than an order

issued with the consent of the

depository institution or the institu-

tion-affiliated party concerned, or an

order issued_under paragraph (1) of

subsection (g) of this section) by the

filing in the court of appeals of the

United States for the circuit in which

the home office of the depository

institution is located, or in the United

States Court of Appeals for the District

of Columbia Circuit, within thirty days

after the date of service of such order,

a written petition praying that the

order of the agency be modified,

40a

eS eee ee

terminated, or set aside. A copy of

such petition shall be forthwith

transmitted by the clerk of the court to

the agency, and thereupon the agency

shall file in the court the record in

the proceeding, as provided in section

2112 of Title 28. Upon the filing of

such petition, such court shall have

jurisdiction, which upon the filing of

the record shall except as provided in

the last sentence of said paragraph (1)

be exclusive, to affirm, modify,

terminate, or set aside, in whole or in

part, the order of the agency. Review

of such proceedings shall be had as

provided in chapter 7 of Title 5. The

judgment and decree of the court shall

be final, except that the same shall

be subject to review by the Supreme

Court upon certiorari, as provided in

section 1254 of Title 28.

4la

ieee

APPENDIZ

_—

Title 12 U.S.C. § 1818(i)(1) states in

relevant part:

+ « « except as otherwise provided

in this section no court shall have

jurisdiction to affect by injunction or

otherwise the issuance or enforcement of

any notice or order under this section,

or to review, modify, suspend,

terminate, or set aside such notice or

order.

42a