# Rules of Practice and Procedure > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2010-19567 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** August 12, 2010 - **Citation:** 75 FR 49314 ## Text FEDERAL HOUSING FINANCE BOARD 12 CFR Part 908 FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1209 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of Federal Housing Enterprise Oversight 12 CFR Part 1780 RIN 2590-AA14 Rules of Practice and Procedure AGENCY: Federal Housing Finance Board; Federal Housing Finance Agency; and Office of Federal Housing Enterprise Oversight, HUD. ACTION: Notice of proposed rulemaking; request for comment. SUMMARY: The Federal Housing Finance Agency (FHFA) solicits written comment on a proposed rule to implement the Housing and Economic Recovery Act of 2008 (HERA) amendments to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) and the Federal Home Loan Bank Act (Bank Act) pertaining to the civil enforcement powers of FHFA, and the Rules of Practice and Procedure for enforcement proceedings. The Safety and Soundness Act, as amended by sections 1151-1158 of HERA, authorizes FHFA to initiate enforcement proceedings against the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (together, the Enterprises) and the Federal Home Loan Banks (the Banks) (collectively, the regulated entities), and entity-affiliated parties as defined in the Safety and Soundness Act. When final, the rule will replace the existing Rules of Practice and Procedure promulgated by the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (Finance Board) formerly charged with overseeing the regulated entities. The proposed rule may provide FHFA personnel, the regulated entities, entity-affiliated parties, and other interested parties with the clear guidance necessary to prepare for and participate in the administrative enforcement action process to increase the efficiency and transparency of FHFA's administrative enforcement hearings. DATES: Comments on the proposed rule must be received in writing on or before October 12, 2010. ADDRESSES: You may submit your written comments on the proposed rulemaking, identified by RIN number 2590-AA14, by any of the following methods: • E-mail: Comments to Alfred M. Pollard, General Counsel, may be sent by e-mail at RegComments@fhfa.gov . Please include “RIN 2590-AA14” in the subject line of the message. • Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. If you submit your comment to the Federal eRulemaking Portal, please also send it by e-mail to FHFA at RegComments@fhfa.gov to ensure timely receipt by the Agency. Please include “RIN 2590-AA14” in the subject line of the message. • U.S. Mail, United Parcel Service, Federal Express, or Other Mail Service: The mailing address for comments is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA14, Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. • Hand Delivery/Courier: The hand delivery address is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA14, Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. A hand-delivered package should be logged at the Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m. FOR FURTHER INFORMATION CONTACT: Charlotte A. Reid, Associate General Counsel, Federal Housing Finance Agency, 1700 G Street, NW., Fourth Floor, Washington, DC 20552, telephone (202) 414-3810 (not a toll-free number). The telephone number for the Telecommunications Device for the Deaf is: (800) 877-8339. SUPPLEMENTARY INFORMATION: The Supplementary Information is organized according to this table of contents: I. Comments II. Background III. Synopsis of the Proposed Rule IV. Section-by-Section Analysis and Discussion V. Regulatory Impact I. Comments The Federal Housing Finance Agency (FHFA) invites comments on all aspects of the proposed Rules of Practice and Procedure (proposed rule), including legal and policy considerations, and will take all comments into consideration before issuing the final rule. All comments received by the deadline will be posted for public inspection on FHFA Web site at http://www.fhfa.gov . Copies of all comments timely received will be available for public inspection and copying at the address above on government-business days between the hours of 10 a.m. and 3 p.m. To make an appointment to inspect comments please call the Office of General Counsel at (202) 414-6924. II. Background A. Establishment of FHFA Effective July 30, 2008, Division A of HERA, Public Law 110-289, 122 Stat. 2654 (2008), titled the Federal Housing Finance Regulatory Reform Act of 2008, created FHFA as an independent agency of the Federal government. 1 HERA amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) (12 U.S.C. 4501 et seq. ) and the Federal Home Loan Bank Act (Bank Act) (12 U.S.C. 1421 through 1449), respectively, to provide that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the Enterprises) and the Federal Home Loan Banks (Banks) (collectively, the regulated entities), are subject to the supervision and regulation of FHFA. 2 1 See generally, HERA, Division A, Titles I-III, Public Law 110-289, 122 Stat. 2654, sections 1101 et seq. (July 30, 2008). Specifically, section 1101 of HERA amended section 1311(a) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act), Title XIII, Public Law 102-550, 106 Stat. 3672, 3941-4012, sections 1301 et seq. (1993), to establish FHFA as an independent agency of the Federal government. See 12 U.S.C. 4511(a). 2 See section 1101 of HERA, amending section 1311(b)(1) of the Safety and Soundness Act, which provides that each regulated entity [defined at section 1303(20) of the Safety and Soundness Act to include the Enterprises and Banks] is subject to the supervision and regulation of FHFA. 12 U.S.C. 4511(b)(1). Additionally, section 1101 of HERA amended section 1311(b)(2) of the Safety and Soundness Act to provide that the regulated entities and the Office of Finance are subject to the general regulatory authority of the Director of FHFA. 12 U.S.C. 4511(b)(2). 3,4 Under this provision the Director has broad general regulatory authority to “ensure that the purposes of [HERA], the authorizing statutes, and any other applicable law are carried out.” See id. 4511(b)(2). 5 3 The Office of Finance acts as agent of the Banks in the issuance of Bank debt called consolidated obligations. See 12 U.S.C. 1431. HERA defined the Office of Finance as an “entity-affiliated party.” 12 U.S.C. 4502(11)(E). In some cases, under the HERA amendments, executive officers, directors or management of the Office of Finance may be subject to the requirements of the enforcement provisions and rules. 4 Section 1101 of HERA established the position of Director, as head of FHFA, in section 1312(a) of the Safety and Soundness Act. 12 U.S.C. 4512(a). 5 Section 1303(3) of the Safety and Soundness Act, as amended by section 1002 of HERA, provides that the term “authorizing statutes” means the Federal National Mortgage Association Charter Act, the Federal Home Loan Mortgage Corporation Act, and the Federal Home Loan Bank Act. See 12 U.S.C. 4502(3). HERA transferred to FHFA the supervisory, mission, and oversight responsibilities over the Enterprises and Banks from the U.S. Department of Housing and Urban Development (HUD), including OFHEO, and the Federal Housing Finance Board (Finance Board), respectively. 6 FHFA was established as the financial safety and soundness regulator to oversee the prudential operations of the Enterprises and Banks ( i.e., the regulated entities) and to ensure that they operate in a safe and sound manner; remain adequately capitalized; foster liquid, efficient, competitive and resilient national housing finance markets; comply with the Safety and Soundness Act and their respective authorizing statutes, as well as all rules, regulations, guidelines, and orders issued under law; and carry out their missions through activities that are authorized by law and are consistent with the public interest. 7 6 HERA abolished OFHEO and the Finance Board one year after the date of its enactment. By operation of law, the regulated entities and the Office of Finance continue to operate under existing regulations promulgated by OFHEO and the Finance Board. Those existing regulations are enforceable by the Director until such time as they are modified, terminated, set aside, or superseded by the Director. See sections 1302 and 1312 of HERA, 122 Stat. 2795, 2798. When final, FHFA Rules of Practice and Procedure (12 CFR part 1209) will supersede the Rules of Practice and Procedure previously promulgated by OFHEO (12 CFR part 1780) and the Finance Board (12 CFR part 908). See also note 17, and accompanying text. 7 See Section 1102 of HERA, amending section 1313 of the Safety and Soundness Act (12 U.S.C. 4513). B. Statutory Background Together, Freddie Mac and Fannie Mae owned or guaranteed nearly $5.34 trillion of residential mortgages in the United States (U.S.) as of December 31, 2009. The Banks support the U.S. housing market by making advances ( i.e., loans secured by eligible collateral) to their member commercial banks, thrifts, and credit unions, assuring a ready flow of mortgage funding. Bank advances stood at $631.2 billion as of December 31, 2009. Thus, the regulated entities play a key role in housing finance and the U.S. economy. The mission of FHFA is to provide effective supervision, regulation, and housing mission oversight of the Enterprises and the Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. Accordingly, the HERA amendments to the Safety and Soundness Act make explicit the general regulatory and supervisory authority of FHFA and the Director, and grant specific supervisory and enforcement powers to the Director. See e.g., 12 U.S.C. 4511, 4513, 4517, 4518, 4526, 4631 through 4641. By design, the Safety and Soundness Act provides the Director with broad supervisory and regulatory authority to ensure the safety and soundness of the regulated entities: the Director “shall exercise such general regulatory authority, including such duties and authorities set forth under section 1313 of the Safety and Soundness Act, to ensure that the purposes of this Act, the authorizing statutes, and any other applicable law are carried out.” See 12 U.S.C. 4511(b)(2). The Director's general regulatory authority is joined to more specific powers, such as those invoked under section 1313 of the Safety and Soundness Act, and the examination authority under section 1317 of the Safety and Soundness Act, thereby constructing a comprehensive framework for safety and soundness regulation of the regulated entities. See 12 U.S.C. 4513, 4517. Specifically, section 1313(a)(1) of the Safety and Soundness Act prescribes the principal duties of the Director. The Director shall “oversee the prudential operations of each regulated entity.” 12 U.S.C. 4513(a)(1)(A). Similarly, section 1313(a)(1)(B) of the Safety and Soundness Act enumerates the principal duties of the Director to ensure that: each regulated entity operates in a safe and sound manner, including maintenance of adequate capital and internal controls; the operations and activities of each regulated entity promote the efficiency, competitiveness, and liquidity of national housing finance markets; each regulated entity complies with the Safety and Soundness Act and the rules, regulations, guidelines, and orders issued under the Safety and Soundness Act and the authorizing statutes; each regulated entity executes its statutory mission through authorized activities; and the activities of each regulated entity are consistent with the public interest. 12 U.S.C. 4513(a)(1)(B). 8 8 See 12 U.S.C. 4513(a)(1)(B)(i) through (v). Further underscoring the Director's ongoing authority to ensure that the operations and management of the regulated entities comport with the Safety and Soundness Act and their respective authorizing statutes, section 1313(a)(2)(B) of the Safety and Soundness Act expressly authorizes the Director to “exercise such incidental powers as may be necessary or appropriate to fulfill the duties and responsibilities of the Director in the supervision and regulation of each regulated entity.” See 12 U.S.C. 4513(a)(2)(B). 9 Thus, the Director may undertake such regulatory and supervisory actions as deemed to be necessary or appropriate to fulfilling the duties and responsibilities of FHFA with respect to the regulated entities. 10 9 The Supreme Court has held that the incidental powers provision applicable to national banks constitutes “an independent grant of authority,” and that courts should view “the specific powers set forth thereafter as exemplary, not exclusive.” NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 258 (1995). 10 Furthermore, other provisions in the Safety and Soundness Act reinforce the independence and general regulatory authority of the Director. For example, section 1311(c) of the Safety and Soundness Act, as amended by section 1101 of HERA, provides that the authority of the Director “to take actions under subtitles B and C [of Title I of Division A of HERA] shall not in any way limit the general supervisory and regulatory authority granted to the Director under subsection (b).” See 12 U.S.C. 4511(c). Section 1313B of the Safety and Soundness Act provides that the Director shall establish certain prudential management and operations standards, by regulation or guideline, for each regulated entity. See 12 U.S.C. 4513b. Finally, section 1319G(a) of the Safety and Soundness Act provides ample, independent authority for the issuance of “any regulations, guidelines, or orders necessary to carry out the duties of the Director under this title or the authorizing statutes, and to ensure that the purposes of this title and the authorizing statutes are accomplished.” 12 U.S.C. 4526 When promulgating regulations that may relate to the Banks, under section 1313(f)[sic] of the Safety and Soundness Act (as amended by section 1201 of HERA) the Director is required to consider the differences between the Banks and the Enterprises with respect to the Banks' cooperative ownership structure; mission of providing liquidity to members; affordable housing and community development mission; capital structure; and joint and several liability. The Director may also consider any other differences that are deemed appropriate. See 12 U.S.C. 4513(f)[sic]. 11 In preparing the proposed rule, the Director considered the differences between the Banks and the Enterprises as they relate to the above factors. The Director is requesting comments from the public about whether differences related to these factors should result in a revision of the proposed rule as it may relate to the Banks. 11 So in original; paragraph designation should be (d). C. Enforcement Authority of the Director Under Sections 1371 Through 1379D of the Safety and Soundness Act, as Amended by HERA To carry out its statutory mission, FHFA must have effective enforcement tools. The HERA amendments to the Safety and Soundness Act and the Bank Act provide that clear authority. The Enterprises and entity-affiliated parties are subject to administrative enforcement proceedings as provided in sections 1371 through 1379D of the Safety and Soundness Act, as amended by sections 1151 through 1158 of HERA (12 U.S.C. 4631 through 4641). HERA also amended the Bank Act and the Safety and Soundness Act to provide that the Banks and the Office of Finance, respectively, are subject to this enforcement framework. 12 As amended, sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641) subject the Enterprises, the Banks, the Office of Finance, and entity-affiliated parties to the authority of the Director to initiate proceedings to issue cease and desist orders, to issue temporary cease and desist orders, to impose civil money penalties, or to obtain removal and prohibition orders, in accordance with applicable law. 12 Section 1204 of HERA repealed the enforcement authority of the Finance Board over the Banks and specified parties in section 2B(a)(5) of the Bank Act (12 U.S.C. 1422b(a)(5)). Therefore, the Banks, the Office of Finance, and specified parties are subject to FHFA enforcement authority as set forth in sections 1371 through 1379D of subtitle C of the Safety and Soundness Act, as amended. See 12 U.S.C. 4631 through 4641. In particular, the HERA provisions in section 1377(a) of the Safety and Soundness Act (12 U.S.C. 4636a(a)), give the Director express authority to suspend or remove from office, or to prohibit any further participation in the conduct of the affairs of a regulated entity, an entity-affiliated party, or any officer, director, or management of the Office of Finance, for any violation, practice, or breach of such party's fiduciary duty, as set forth therein. Additionally, in accordance with section 1377(b) of the Safety and Soundness Act (12 U.S.C. 4636a(b)), the Director can take immediate action to suspend or remove from office, or to prohibit the participation in any manner in the conduct of the affairs of the regulated entity, any party subject to an action under section 1377(a) of the Safety and Soundness Act. Finally, under section 1377(h) of the Safety and Soundness Act (12 U.S.C. 4636a(h)), with respect to any entity-affiliated party who is charged with a Federal or State crime involving dishonesty or breach of trust, which is punishable by imprisonment for more than one year, in any criminal information, indictment or complaint, the Director is authorized to suspend such party from office or prohibit him or her from any further involvement in the conduct of the affairs of a regulated entity if continued service or participation by such party could pose a threat to, or impair public confidence in, the regulated entity. See 12 U.S.C. 4636a(h)(1)(A). The statute prescribes that a copy of the suspension notice shall be served on each relevant regulated entity. See 12 U.S.C. 4636a(h)(1)(B)(i). Thus, under these enhanced powers, the Director has at his or her disposal a broad range of enforcement actions to enforce, as needed, applicable law, rules, orders, and agreements pertaining to the safe and sound operation of the Enterprises and Banks. 13 Because this enforcement authority parallels that of the enforcement tools available to bank regulatory agencies, the procedures for pursuing such actions, by design, are similar. The Federal bank and thrift regulators' uniform rules of practice and procedure for enforcement actions adopted under section 916 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Public Law 101-73, 103 Stat. 183 (1989) (the Uniform Rules) set the standard for formal enforcement proceedings, and served as the model for the enforcement regulations later adopted by OFHEO and the Finance Board. 14 Thus, the proposed regulation builds upon the Uniform Rules, as well as the existing enforcement regulations adopted by OFHEO in 1999 (and amended in 2001) (12 CFR part 1780), and the Finance Board's Rules of Practice and Procedure adopted in 2002 (12 CFR part 908). 13 The Director has broad safety and soundness enforcement authority under sections 1371 through 1379D of the Safety and Soundness Act, (subtitle C—Enforcement Provisions) (12 U.S.C. 4631 through 4641), in furtherance of the Director's general safety and soundness regulatory authority. Additionally, the Director has authority under subtitle B of the Safety and Soundness Act (sections 1361 through 1369E) to set and enforce capital levels or appoint FHFA as conservator or receiver for a regulated entity. More important, as amended by HERA, section 1311(c) of the Safety and Soundness Act expressly preserves these powers in addition to the Director's general supervisory and regulatory authority under subsection (b) of section 1311 of the Safety and Soundness Act, as amended: “[t]he authority of the Director to take actions under subtitles B and C shall not in any way limit the general supervisory and regulatory authority granted to the Director under subsection (b).” See 12 U.S.C. 4511(c). 14 The Federal Financial Institutions Examination Council (FFIEC) members adopted the Uniform Rules as noted: the Office of the Comptroller of the Currency (OCC), 12 CFR part 19 (56 FR 38028, August 9, 1991) (as amended 61 FR 20334, May 6, 1996; 70 FR 69638, November 17, 2005); the Office of Thrift Supervision (OTS), 12 CFR Part 509 (56 FR 38306, August 12, 1991) (as amended 56 FR 59866, November 26, 1991; 61 FR 20353, May 6, 1996; 70 FR 69641, November 17, 2005, and 72 FR 25955, May 8, 2007); the Federal Deposit Insurance Corporation (FDIC), 12 CFR Part 308 (56 FR 37975, August 9, 1991) (as amended 61 FR 20347, May 6, 1996; 70 FR 69639, November 17, 2005); the Board of Governors of the Federal Reserve (FED) 12 CFR Part 263 (56 FR 38052, August 9, 1991) (as amended 61 FR 20341, May 6, 1996; 70 FR 69638, Nov. 17, 2005; 73 FR 58032, Oct. 6, 2008); and the National Credit Union Administration (NCUA), 12 CFR Part 747 (56 FR 37767, August 8, 1991) (as amended 57 FR 523, January 7, 1992; 61 FR 28024, June 4, 1996; 71 FR 67440, November 22, 2006). Cease and desist enforcement proceedings are commenced by serving a notice of charges that is to set forth the facts constituting the practice or violation and fix a time and place for a hearing to determine on the record whether an order to cease and desist from such practice or violation should issue. See 12 U.S.C. 4631(c)(1). Such hearings are governed by section 1373 of the Safety and Soundness Act. See generally, 12 U.S.C. 4633. In fact, section 1373(a)(1) of the Safety and Soundness Act (12 U.S.C. 4633(a)(1)) provides that any hearing under sections 1371 (cease and desist order), 1376(c) (civil money penalty assessment) or 1377 (removal or suspension orders; except removal actions under section 1377(h) of the Safety and Soundness Act) be held on the record. See 12 U.S.C. 4633(a)(1). Therefore, prior to issuing a cease-and-desist order, imposing civil money penalties, or ordering the suspension or removal of an entity-affiliated party or any officer, director, or management of the Office of Finance, FHFA must conduct a hearing on the record and provide the subject of such an order with notice and the opportunity to participate in a hearing that is to be conducted in accordance with chapter 5 of title 5 of the United States Code. 15 Sections 554, 556, and 557 of the Administrative Procedure Act govern hearings on the record. 16 The Rules of Practice and Procedure as proposed (proposed rule) establish the procedural requirements for any hearing on the record in an enforcement proceeding brought under subtitle C of the Safety and Soundness Act in conformity with the APA. 15 See section 1373(a)(3) of the Safety and Soundness Act (12 U.S.C. 4633(a)(3)). 16 Public Law 89-554, 80 Stat. 381 (1966) (codified at 5 U.S.C. 551-559; 701-706). Formal adjudications ( i.e., hearings “on the record”) are governed by chapters 5 and 7 of the Administrative Procedure Act (5 U.S.C. 554, 556, and 557) (APA). The APA grants each agency “the authority necessary to comply with the requirements of [chapter 5] through the issuance of rules or otherwise.” See 5 U.S.C. 559. D. Rules of Practice and Procedure As stated, the proposed Rules of Practice and Procedure are designed to govern hearings on the following matters that FHFA by law must conduct on the record in accordance with APA formal hearing requirements: (1) Enforcement proceedings under sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641) (except section 1377(h) (12 U.S.C. 4636a)); (2) Removal, prohibition, and civil money penalty proceedings for violations of post-employment restrictions imposed by applicable law; and (3) Proceedings under section 102 of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a) to assess civil money penalties. To ensure that comprehensive hearing procedures are in place to conduct such hearings, the proposed rule departs from the organizational structure of the existing OFHEO rule and delinks the procedural steps for hearings on the record from the underlying statutory enforcement authority set forth in sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641). To make this distinction clear, the enforcement authority is set out in subpart B of the proposed rule, whereas the formal hearing procedures are separately stated in subpart C of the proposed rule. The stand alone formal hearing procedures in subpart C of Part 1209 also could govern civil money penalty proceedings authorized under section 1345 of the Safety and Soundness Act that require a hearing on the record, but that specifically provides for remedies that differ from those under sections 1371 and 1376 of the Safety and Soundness Act. See 12 U.S.C. 4582, 4585, 4631(a)(2) and 4636(a). In addition to the housing goals enforcement proceedings under sections 1341 and 1345 of the Safety and Soundness Act, the formal hearing procedures in subpart C of this part could apply to the enforcement of the regulated entities' reporting requirements under section 1314 of the Safety and Soundness Act (12 U.S.C. 4514). The Rules of Practice and Procedure, when final, will replace the Rules of Practice and Procedure previously adopted by OFHEO (12 CFR part 1780) and the Finance Board (12 CFR part 908). 17 The OFHEO rule serves as the template for the proposed rule. 18 Specifically, the proposed rule sets out the requirements for the commencement of an enforcement proceeding by service of a notice of charges; the appointment of a presiding officer; hearing procedures and permissible activities; the conduct of the trial-like testimonial phase of the hearing process; the presiding officer's filing with the Director of a recommended decision and order, along with the hearing record; the decision by the Director; and the qualifications and disciplinary rules for practice before FHFA. 19 During the course of the hearing, the presiding officer controls virtually all aspects of the proceeding. In particular, the presiding officer: determines the hearing schedule; presides over all conferences; rules on non-dispositive motions, discovery, and evidentiary issues; and ensures that the proceeding is prompt, fair, and impartial, and allows for the creation of a written record upon which the recommended decision is based. 20 17 The Finance Board's enforcement authority, as enacted in sections 2B(a)(2) and (5) of the Bank Act in 1999, was derived in part from OFHEO's enforcement authority under sections 1371 through 1379D of the Safety and Soundness Act of 1992. Compare 12 U.S.C. 1422b(a)(2), (5) with 12 U.S.C. 4631 through 4641. With the exception of the grounds for cease and desist actions and removal authority accorded the Finance Board, the provisions were nearly indistinguishable. Accordingly, the Finance Board Rules of Practice and Procedure (12 CFR part 908) were highly aligned with the pre-existing OFHEO Rules of Practice and Procedure (12 CFR part 1780). In many respects these procedural rules are nearly identical. The term “existing provision,” is used to refer to those co-extensive provisions. 18 As stated, the Finance Board Rules of Practice and Procedure (12 CFR part 908) were modeled on, and are nearly identical to, the OFHEO rule in most procedural respects. For convenience, the OFHEO rule served as the basic template for the proposed FHFA rule. In some cases, however, the Finance Board rule informed the drafting, for example, in defining certain terms such as notice ( i.e., notice of charges), hearing, and the Safety and Soundness Act. 19 5 U.S.C. 1305 sets forth the authority of the Office of Personnel Management (OPM) relating to the appointment of an administrative law judge (ALJ). In practice, an OPM-appointed ALJ serves as presiding officer. 20 As with the Uniform Rules, parties to an FHFA enforcement proceeding have the right to present evidence and to examine and cross-examine the witnesses at the evidentiary hearing stage. Upon completion of the testimonial phase of the hearing, the parties may submit proposed findings of fact and conclusions of law and a proposed order. After taking the evidence and considering the record, the presiding officer makes a recommended decision and submits the complete record to the Director, which includes recommended findings of fact and conclusions of law, and a proposed order. The record also includes all transcripts, exhibits, rulings, motions, briefs and memoranda, expert witness reports, and all supporting papers filed in connection with the hearing. The current requirement that the Director issue a final ruling within ninety (90) days of the date on which the Director serves notice upon the parties that the hearing record is complete and the case has been submitted for final decision also is retained in the proposed FHFA Rules of Practice and Procedure. Importantly, the presiding officer does not have the authority to make a ruling that disposes of the proceeding. Only the Director has the authority to dismiss the proceeding, in whole or in part, or to make a final determination of the merits of the proceeding. This ensures that FHFA and the respondent receive full and fair consideration of the matters at issue. Many of the proposed revisions to the Rules of Practice and Procedure were informed by OFHEO's prior experience in conducting enforcement proceedings under its rule. From that practice, FHFA has identified certain issues for clarification. Accordingly, FHFA is suggesting revisions in the proposed rule to make the adjudication process more efficient, fair, and transparent. For example, the proposed rule includes a definition of “notice of charges.” The notice of charges is the charging document that is served by FHFA on a regulated entity or party as provided in sections 1371 through 1377 of the Safety and Soundness Act (12 U.S.C. 4631 through 4636a) to initiate enforcement proceedings. Additionally, to resolve any confusion, the definition as proposed in § 1209.3 clarifies that a “notice of charges” is to be distinguished from an “effective notice” within the meaning of 12 U.S.C. 4635(a), and that that provision does not confer jurisdiction upon a Federal district court over an agency enforcement proceeding. FHFA also is proposing to make the presiding officer's authority more explicit in several respects. First, § 1209.11 of the proposed rule (Authority of the Presiding Officer) affords the presiding officer support for holding an initial scheduling conference to control the proceedings. Thus, § 1209.11(b)(1) of the proposed rule states that the date for the testimonial phase of the hearing is to be set in a scheduling order issued in conjunction with the initial scheduling conference set under § 1209.36 of the proposed rule. Second, the proposed rule permits the presiding officer more leeway to control the pace and context of discovery; and, if necessary, discretion to prohibit unnecessary or burdensome discovery. Accordingly, § 1209.11(b)(5) of the proposed rule confirms that, among other things, the presiding officer may issue and enforce discovery orders. Section 1209.11(b)(8) of the proposed rule restates the broad powers of the presiding officer to regulate the scope, timing, and completion of discovery of any non-privileged matter that is materially relevant to the charges or allowable defenses in the proceeding. Third, FHFA has determined to make more explicit the requirement that matters or documents subject to discovery must be “materially relevant” to the charges or allowable defenses in the proceeding to support the presiding officer's ability to deny discovery requests that are not so framed. (“Materially relevant” is generally understood to mean that the information sought must have a logical connection to a consequential fact that tends to prove or disprove a matter in issue.) Similarly, § 1209.11(b)(11) of the proposed rule underscores that the presiding officer has ample authority to admit, exclude, or limit evidence according to its material relevance to the legally cognizable claims and defenses presented by a notice of charges. Finally, as a corollary to the authority of the presiding officer to set the date of the evidentiary hearing in a scheduling order, § 1209.23 of the proposed rule clarifies that the notice of charges is to specify that the testimonial hearing date will be determined when the presiding officer holds the initial scheduling conference and issues a scheduling order within thirty (30) to sixty (60) days of service of the notice of charges. FHFA believes that these and other enhancements to the rule as proposed will ensure that any enforcement action taken by FHFA is governed by a process that is expeditious, thorough, and fair. III. Synopsis of the Proposed Rule FHFA is proposing to revise the Rules of Practice and Procedure to be codified in a new part 1209 that would supersede the existing OFHEO and Finance Board Rules of Practice and Procedure governing enforcement proceedings, which are nearly identical procedurally. For ease of drafting, the template for the proposed rule is the OFHEO Rules of Practice and Procedure (12 CFR part 1708). 21 In addition, the proposed rule is faithful to the model Uniform Rules and meets or exceeds all applicable APA requirements for formal hearings. Part 1209 will govern the conduct of FHFA administrative hearings on the record for enforcement proceedings as provided in the Safety and Soundness Act. Many of the provisions in the existing OFHEO rule (and their identical counterparts in the Finance Board rule) are to be adopted unchanged. Other provisions, as noted below, are to be modified to reflect actual practices or current law, to make the process more efficient, or to ensure that the procedures, on their face, are fair and transparent. 21 As stated, when it was originally adopted, the Finance Board rule (12 CFR part 908) was based on the OFHEO rule (12 CFR part 1780), and the procedural requirements are substantively identical, unless otherwise noted. See notes 17 and 18 with accompanying text. The proposed rule is organized as follows: Part 1209 is to be divided into several topical subparts in order to more clearly delineate the specific enforcement authority of the Director under sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641) as distinct from the procedural steps for hearings on the record for enforcement actions and proceedings as enumerated below. Thus, part 1209 of this title is segmented into subparts as follows: Subpart A (Scope and Authority) sets out the purpose and authority of the rule, the rules of construction, and the definitions that have general applicability to part 1209, and provides that the rules of practice and procedure governing agency hearings on the record shall apply to: (1) Enforcement proceedings under sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641); (2) Removal, prohibition, and civil money penalty proceedings for violations of post-employment restrictions imposed by applicable law; and (3) Civil money penalty proceedings under section 102 of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a). Subpart B (Enforcement Proceedings under sections 1371 through 1379D) summarizes the controlling law for enforcement proceedings set out in sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641). Subpart C (Rules of Practice and Procedure) the principal procedural subpart sets out the requisite procedures for formal agency hearings held on the record in accordance with this part. Subpart D (Parties and Representational Practice before the Federal Housing Finance Agency; Standards of Conduct) sets out the responsibilities that govern every party or party's representative appearance in hearings on the record under these rules, or in any appearance before the Director or any agency representative. Subpart E (Civil Money Penalty Inflation Adjustments) provides a stand alone framework for making inflation adjustments to the civil money penalty amounts periodically required (not less than every four years) under the Federal Civil Penalties Inflation Adjustment Act of 1990, Public Law. 101-410, 104 Stat. 890, as amended by the Debt Collection Improvement Act of 1996, Public Law 104-134, title III, sec. 31001(s)(1), Apr. 26, 1996, 110 Stat. 1321-373; Public Law 105-362, title XIII, sec. 1301(a), Nov. 10, 1998, 112 Stat. 3293 (28 U.S.C. 2461 note) (Inflation Adjustment Act). Subpart F (Suspension or Removal of Entity-Affiliated Party Charged with Felony) specifies the procedures for a hearing following suspension or removal of an entity-affiliated party charged with a felony under section 1377(h) of the Safety and Soundness Act (12 U.S.C. 4636a(h)) that are not governed by subpart C (Rules of Practice and Procedure). The section-by-section analysis and discussion of subparts A-F address each section in more detail below. IV. Section-by-Section Analysis and Discussion Subpart A—Scope and Authority Section 1209.1 Scope This section sets out the authority for agency enforcement proceedings under sections 1371 through 1379D of the Safety and Soundness Act governing civil enforcement proceedings, including: removal, prohibition, and civil money penalty proceedings for violations of post-employment restrictions imposed by applicable law, and proceedings under section 102 of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a) to assess civil money penalties. Section 1209.2 Rules of Construction This section prescribes general rules of construction and provides that unless stated otherwise a party's representative of record may take any action required of a party. Section 1209.3 Definitions This section sets out definitions of terms applicable to this Part. Many of the definitions are drawn from the existing OFHEO and Finance Board rules. In addition, definitions of terms are added as required to address the HERA amendments to the Safety and Soundness Act and Bank Act, such as the inclusion of the Office of Finance and its executive officers, directors, or management where applicable under the HERA amendments, or where experience has shown that the process would benefit from greater clarity. In particular, the rule is to contain a definition of “notice of charges” to clarify that the term refers to the charging document served on a respondent in an enforcement proceeding, and is not to be confused with an effective notice as that term is used in section 1375(a) of the Safety and Soundness Act (12 U.S.C. 4635(a)). Similarly, any notice of removal or suspension or intent to impose civil money penalties, is akin to a notice of charges in that respect. These charging documents are to be distinguished from effective notices and orders that are of immediate and enforceable effect under the Safety and Soundness Act. Subpart B—Scope and Authority-Enforcement Proceedings Under Sections 1371-1379D Section 1209.4 Scope and Authority This section states the authority for enforcement proceedings under sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641). Specifically, section 1373 of the Safety and Soundness Act (12 U.S.C. 4633) provides that the following actions must be held on the record: (1) Cease and desist proceedings under section 1371 of the Safety and Soundness Act (12 U.S.C. 4631), (2) civil money penalty assessment proceedings under section 1376 of the Safety and Soundness Act (12 U.S.C. 4636), and (3) proceedings under the removal and prohibition authority of section 1377 of the Safety and Soundness Act (12 U.S.C. 4636a) (except proceedings under section 1377(h) of the Safety and Soundness Act for the suspension or removal of an entity-affiliated party charged with a felony. (12 U.S.C. 4636a(h)). Additionally, this section states that the cease and desist and civil money penalty provisions of sections 1371 and 1376 of the Safety and Soundness Act (12 U.S.C. 4631 and 4636) do not apply to cease and desist or civil money penalty proceedings relative to the enforcement of housing goals under sections 1331 through 1348 of the Safety and Soundness Act. In particular, section 1336(c) of the Safety and Soundness Act (12 U.S.C. 4566(c)) provides that actions to enforce housing goals must proceed under sections 1341 and 1345 of the Safety and Soundness Act. See 12 U.S.C. 4581, 4585, and 4631(a)(2). 22 Prior to HERA, actions to enforce Enterprise housing goals were reserved to the Secretary of Housing and Urban Development (HUD). That division of enforcement authority was eliminated because HERA transferred to the Director of FHFA the responsibility for enforcing Enterprise housing goals. Thus, the requirement that housing goals enforcement actions are to proceed under sections 1341 through 1348 of the Safety and Soundness Act (12 U.S.C. 4581 through 4588) controls. 23 The grounds for initiating such cease and desist proceedings relative to housing goals are set forth in section 1341 of the Safety and Soundness Act (12 U.S.C. 4581), and section 1345 of the Safety and Soundness Act provides for civil money penalties for such violations that differ from the civil money penalty provisions in section 1376 of the Safety and Soundness Act (12 U.S.C. 4636). See 12 U.S.C. 4585. Like the enforcement proceedings under sections 1371 through 1376 of the Safety and Soundness Act (12 U.S.C. 4631 et seq. ), housing goals enforcement actions proceed following the issuance and service of a notice of charges and are conducted as a hearing on the record. Se e 12 U.S.C. 4582(a)(1). Thus, the formal hearing procedures set out in subpart C of part 1209 as proposed are well-suited to govern housing goals enforcement proceedings. 22 The corollary provision in section 1371(a)(2) of the Safety and Soundness Act (12 U.S.C. 4631(a)(2)) states in pertinent part that the Director may not proceed under that section to “enforce compliance with any housing goal established under [sections 1331 through 1348 of the Safety and Soundness Act], with section 1336 or 1337 of this title, with subsection (m) or (n) of section 309 [of Fannie Mae's authorizing statute] (12 U.S.C. 1723a(m), (n)), with subsection (e) or (f) of section 307 [of Freddie Mac's authorizing statute] (12 U.S.C. 1456(e), (f)), or with paragraph (5) of section 10(j) of the Federal Home Loan Bank Act (12 U.S.C. 1430(j)).” 23 Section 1205 of HERA added a new section 10C of the Bank Act to provide that the housing goals for the Banks should be consistent with the housing goals for the Enterprises and applied the enforcement provisions of section 1336 of the Safety and Soundness Act to the Banks in the same manner and to the same extent as that section applies to the Enterprises. That effectively applies the same enforcement authority under sections 1341 and 1345 of the Safety and Soundness Act to the Banks. See generally 12 U.S.C. 1421. Section 1209.5 Cease and Desist Proceedings Generally, the statutory authority and requirements for cease and desist proceedings are set out in section 1371 of the Safety and Soundness Act (12 U.S.C. 4631), as amended by section 1151 of HERA. Assuming that the requisite conditions are met, a cease and desist proceeding is initiated by service of a notice of charges, and a hearing on the record is held to determine whether the grounds are satisfied. The hearing is administered by an independent presiding officer who makes recommended findings of fact and conclusions of law and transmits the entire administrative record to the Director who makes a final determination based on the record and issues an order. Judicial review of an order is available pursuant to section 1374 of the Safety and Soundness Act (12 U.S.C. 4634), which provides that judicial review of any order issued under sections 1371, 1313B, 1376, or 1377 of the Safety and Soundness Act (12 U.S.C. 4631, 4513b, 4636, or 4636a) may be obtained by filing a petition in the United States Court of Appeals for the District of Columbia Circuit within thirty (30) days of the date of the order. An appeal does not operate as a stay of an order issued by the Director, unless specifically ordered by the court. Under section 1375(a) of the Safety and Soundness Act, it is within the Director's discretion to seek enforcement of an effective and outstanding notice or order issued under subtitle C or subtitle B of the Safety and Soundness Act. Section 1375(b) of the Safety and Soundness Act prescribes that, except as otherwise expressly conferred, no court shall have jurisdiction to affect the issuance or enforcement of any notice or order under sections 1371, 1372, 1313B, 1376, or 1377 of the Safety and Soundness Act (12 U.S.C. 4631, 4513b, 4636, and 4636a). The grounds for instituting cease and desist proceedings are set forth in section 1371(a) and (b) of the Safety and Soundness Act (12 U.S.C. 4631(a) and (b)). Specifically, an unsafe or unsound practice in conducting the business of a regulated entity or the Office of Finance, or violation of a law, rule, regulation, order, or any condition imposed in writing by the Director, may be grounds for a cease and desist order. Service of a notice of charges is governed by section 1371(c)(1) of the Safety and Soundness Act (12 U.S.C. 4631(c)(1)). Issuance of an order is governed by section 1371(c)(2) of the Safety and Soundness Act (12 U.S.C. 4631(c)(2)). If the Director finds on the basis of the record made at a hearing that any practice or violation has been established (or the regulated entity or entity-affiliated party consents to an order), the Director may issue and serve on the regulated entity or entity-affiliated party an order requiring the party to cease and desist from such practice or violation. Under section 1371(d) of the Safety and Soundness Act (12 U.S.C. 4631(d)), a cease and desist order or a temporary cease and desist order may also require a party to take affirmative action to correct or remedy any condition resulting from any practice or violation with respect to which the order is issued. See 12 U.S.C. 4631(a), (c)(2), and (d). Additionally, section 1371(e) of the Safety and Soundness Act (12 U.S.C. 4631(e)), states the authority of the Director to place limitations on the activities or functions of the regulated entity or entity-affiliated party or any executive officer or director of the regulated entity or entity-affiliated party in connection with the cease and desist order or temporary cease and desist order. Finally, section 1371(f) of the Safety and Soundness Act (12 U.S.C. 4631(f)), specifies the effective date of a cease and desist order and provides that such order shall remain effective and enforceable as provided in the order, except to the extent that the order is stayed, modified, terminated or set aside by the Director or otherwise as provided under the Safety and Soundness Act. Section 1209.6 Temporary Cease and Desist Orders Section 1372(a) of the Safety and Soundness Act (12 U.S.C. 4632(a)) provides that if the Director determines that the actions specified in the notice of charges served upon a regulated entity or any entity-affiliated party, or the continuation thereof, is likely to cause insolvency or significant dissipation of assets or earnings of that entity, or is likely to weaken the condition of that entity prior to the completion of the proceedings conducted pursuant to sections 1371 and 1373 of the Safety and Soundness Act (12 U.S.C. 4631, 4633), the Director may issue a temporary order requiring that party to cease and desist from any such violation or practice and that such party take affirmative action to prevent or remedy such insolvency, dissipation, condition, or prejudice pending completion of the proceedings. 24 In addition, the order may include any limitations on the activities or functions of a regulated entity or any entity-affiliated party in connection with the temporary cease and desist order permitted under section 1371(d) of the Safety and Soundness Act (12 U.S.C. 4631(d)). 24 FHFA notes that “prejudice,” which is a carryover in the statute as amended by HERA, without more may appear to be misplaced. But consider that the term by itself does not provide a separate ground for issuing a temporary cease and desist order that requires affirmative action. Presumably, acts or omissions prejudicial to the financial interests of a regulated entity would fall under the “dissipation of assets” proviso, and actions prejudicial to other interests of the regulated entity could be subsumed by “condition.” For that reason, FHFA has determined that it is not a term to be deleted as an anachronism, and invites public comment on this issue. Section 1372(b) of the Safety and Soundness Act (12 U.S.C. 4632(b)) provides that the effective date of a temporary order issued under section 1372(a) of the Safety and Soundness Act (12 U.S.C. 4632(a)) is the date of service on the party. Any such order, unless set aside, limited, or suspended by a court under the judicial review provisions of section 1372(d) of the Safety and Soundness Act (12 U.S.C. 4632(d)), shall remain in effect and enforceable pending the completion of the proceedings, and shall remain effective until the Director dismisses the charges or the order is superseded by a cease and desist order under section 1371 of the Safety and Soundness Act (12 U.S.C. 4631). See 12 U.S.C. 4632(b). Additionally, section 1372(c)(1) of the Safety and Soundness Act (12 U.S.C. 4632(c)(1)) prescribes the measures available where the notice of charges specifies that the books and records of the regulated entity are so incomplete or inaccurate that the Director is unable to determine the true financial condition of the regulated entity or the details of a transaction that may have a material effect on the financial condition of the entity. In brief, the Director may issue a temporary order requiring the entity to cease the practices giving rise to the incomplete or inaccurate records or take affirmative action to correct the records. See 12 U.S.C. 4631(c)(1). Section 1372(c)(2) of the Safety and Soundness Act (12 U.S.C. 4632(c)(2)) specifies that the effective period of a temporary order pertaining to the books and records of an entity is effective upon service, and (unless set aside under 12 U.S.C. 4632(d)) shall remain in effect and enforceable until the earlier of the completion of the proceedings initiated under section 1371 of the Safety and Soundness Act (12 U.S.C. 4631) or the Director determines upon examination or otherwise that the books and records are accurate and reflect the financial condition of the regulated entity. Judicial review of a temporary order proceeds under section 1372(d) of the Safety and Soundness Act (12 U.S.C. 4632(d)) when a party served with a temporary order acts within ten (10) days to seek an injunction to set aside the order pending completion of the cease and desist proceeding. The district court's jurisdiction is limited to the issuance of such an injunction, and does not extend to the merits of the underlying enforcement proceeding. See 12 U.S.C. 4632(d). Without exception, the district court has no authority under this provision to assert subject matter jurisdiction over the underlying enforcement action or to remove the enforcement case from the presiding officer's jurisdiction to Federal district court. Finally, section 1372(e) of the Safety and Soundness Act (12 U.S.C. 4632(e)), specifies that in the event of a violation or threatened violation of a temporary order issued under section 1372 of the Safety and Soundness Act (12 U.S.C. 4632), the Director may bring an action in the United States District Court for the District of Columbia for an injunction to enforce the order. The validity of the order is not at issue here and the court's action is a mandate. If the court finds any violation, threatened violation, or failure to obey an order issued under this provision, the court shall issue the injunction. Section 1209.7 Civil Money Penalties Section 1376 of the Safety and Soundness Act, as revised by section 1155 of HERA, governs civil money penalty enforcement proceedings under the Safety and Soundness Act, except as to housing goals violations addressed under section 1345(a) of the Safety and Soundness Act. See 12 U.S.C. 4636(a). The Director may impose a civil money penalty on any regulated entity or an entity-affiliated party in accordance with section 1376 of the Safety and Soundness Act (12 U.S.C. 4636(a)). HERA amendments to section 1376 of the Safety and Soundness Act strengthened the statutory authority, preserved the three-tiered structure for assessing civil money penalties (Tiers 1-3), and increased (and, in the case of the higher tiers, significantly increased) the maximum penalty amounts for each tier. Under the HERA amendments to the provisions governing Tier 1, a regulated entity or entity-affiliated party shall forfeit and pay a civil penalty of not more than $10,000 for each day during which a violation continues, if such regulated entity or party violates—(1) Any provision of the Safety and Soundness Act, the authorizing statutes, or any order, condition, rule or regulation under the Safety and Soundness Act or authorizing statutes; (2) any final or temporary order issued under the Safety and Soundness Act; (3) any condition imposed by the Director in connection with the grant of any application or other request by the regulated entity; or (4) any written agreement between the regulated entity and the Director. See 12 U.S.C. 4636(b)(1)(A)-(D) (Tier 1 violations). As amended by HERA, section 1376(b)(2) of the Safety and Soundness Act (12 U.S.C. 4636(b)(2)) sets forth broader standards for Tier 2 violations and penalties. Moreover, with the addition of the caveat “notwithstanding paragraph (1),” the revised section allows that Tier 2 violations can stand independently of Tier 1 violations, while at the same time building on that set of violations. See 12 U.S.C. 4636(b)(2). Under the provisions governing Tier 2 penalties, the Director can assess a higher daily civil money penalty of not more than $50,000 for each day during which a violation, practice, or breach continues, if (A) the regulated entity or entity-affiliated party: (1) Commits any Tier 1 violation described in 12 U.S.C. 4636(b)(1); (2) recklessly engages in an unsafe or unsound practice in conducting the affairs of the regulated entity; or (3) breaches any fiduciary duty, and (B) the violation, practice, or breach: (1) Is part of a pattern of misconduct, (2) causes or is likely to cause more than a minimal loss to the regulated entity, or (3) results in pecuniary gain or benefit to such party. See id. Thus, section 1376(b) of the Safety and Soundness Act, among other things deleted the predicate “violation or conduct;” substituted “more than minimal loss” for the previous requirement of “material loss;” added both “breach of fiduciary duty” and “results in pecuniary gain” as culpability standards; deleted the requirement of “recklessness;” and eliminated the distinction in the prior statutory scheme that had allowed for lesser penalty amounts to be assessed against individuals than for regulated entities for the same Tier 2 violations. See id. The revised statutory scheme underscores the Congressional purpose behind strengthening the Director's civil money penalty enforcement authority. Section 1376(b)(3) of the Safety and Soundness Act, governs Tier 3 conduct and penalties. As with Tier 2, Tier 3 also can stand independent of the lower tiers. Specifically, Tier 3 provides that a regulated entity or entity-affiliated party shall forfeit and pay a civil penalty, in the amounts described below, for each day during which such violation, practice, or breach continues, if such party knowingly (1) commits any violation described in the Tier 1 provisions, (2) engages in any unsafe or unsound practice in conducting the affairs of the regulated entity, or (3) breaches any fiduciary duty, and knowingly or recklessly causes a substantial loss to the regulated entity or a substantial pecuniary gain or other benefit to such party by reason of such violation, practice, or breach. See 12 U.S.C. 4636(b)(3). The Tier 3 penalty provisions set the daily maximum penalty at $2 million for a regulated entity. Whereas, the Director can assess against an entity-affiliated party a daily penalty not to exceed $2 million. Section 1376(c)(2) of the Safety and Soundness Act sets out the factors to be considered by the Director in determining the penalties to be assessed under this section (12 U.S.C. 4636(c)(2)). Section 1376(c)(3) of the Safety and Soundness Act provides that the imposition of any penalty under section 1376 of the Safety and Soundness Act (12 U.S.C. 4636) is not reviewable, except as provided for in section 1374 of the Safety and Soundness Act (12 U.S.C. 4634). See 12 U.S.C. 4636(c)(3). Additionally, these revised amounts, which represent a large increase in the daily maximum penalty amounts (particularly by bringing penalties to be assessed against entity-affiliated parties in line with those assessed on a regulated entity), are adjusted periodically under the Inflation Adjustment Act, as provided in subpart E of this part. Section 1209.8 Removal and Suspension Proceedings Section 1153 of HERA provides that the statutory authority and requirements for removal and suspension enforcement proceedings are set forth in section 1377 of the Safety and Soundness Act (12 U.S.C. 4636a). The removal or suspension of an entity-affiliated party, or the officers, directors, or management of the Office of Finance, a joint office of the Banks—where the requisite conditions are met, is initiated by service of a notice, and a hearing on the record is held to determine whether the grounds are satisfied, as provided by section 1373(a)(1) of the Safety and Soundness Act (12 U.S.C. 4633(a)(1)). As with a cease and desist proceeding, the hearing (with the exception of removal proceedings under section 1377(h) of the Safety and Soundness Act (12 U.S.C. 4636a (h)) is presided over by an independent presiding officer who sets a date for an evidentiary hearing, presides over the proceeding, and then submits her recommended findings of fact and conclusions of law with the entire administrative record to the Director who makes a final determination on the merits and issues an order. In particular, section 1377(a)(1) of the Safety and Soundness Act authorized the Director to serve upon a party described in paragraph (a)(2) of the section, or any officer, director, or management of the Office of Finance, written notice of the intention of the Director to suspend or remove such party from office, or prohibit any further participation by such party, in any manner, in the conduct of the affairs of a regulated entity. See 12 U.S.C. 4636a(a)(1). For purposes of this section, under section 1377(a)(2) of the Safety and Soundness Act, a party is an entity-affiliated party or any officer, director, or management of the Office of Finance, if the Director determines that a party, officer, or director directly or indirectly violated a law, regulation, final cease and desist order, or any written condition in connection with an application, notice, or other request of a regulated entity; engaged or participated in any unsafe or unsound practice in connection with any regulated entity or business institution; or breached a fiduciary duty, and by reason of such violation, practice, or breach, the regulated entity or business institution suffered or probably will suffer financial loss or other damage, or such party received financial gain or other benefit, and the violation, practice, or breach involves either personal dishonesty on the part of such party or demonstrates willful or continuing disregard by that party for the safety or soundness of the regulated entity or business institution. See 12 U.S.C. 4636a(a)(2). Section 1377 of the Safety and Soundness Act subjects the officers, directors, and management of the Office of Finance to the suspension and removal authority of the Director, if the stated conditions are met. See 12 U.S.C. 4636a. The Office of Finance is included in the definition of entity-affiliated party in section 1303(11)(E) of the Safety and Soundness Act 12 (U.S.C. 4502(11)(E)). Presumably, the term “business institution,” as used in section 1377 of the Safety and Soundness Act, too, refers to the Office of Finance, a joint office and agent of the Banks central to the issuance of consolidated obligations on which the Banks are jointly and severally liable. Under section 1377(b) of the Safety and Soundness Act (12 U.S.C. 4636a(b)), the Director may issue an order to suspend or remove a party from office, or prohibit such party from participation in the affairs of the regulated entity, upon service of the notice under paragraph (a)(1) of section 1377 of the Safety and Soundness Act (12 U.S.C. 4636a(a)), if the Director makes a determination that the action is necessary for the protection of the regulated entity and such party is served with the order. See 12 U.S.C. 4636a(b)(1). An immediate order of suspension issued under paragraph (b) of this section is effective when served. See 12 U.S.C. 4636a(b)(2)(A). Furthermore, section 1377(b)(2)(B) of the Safety and Soundness Act (12 U.S.C. 4636a(b)(2)(B)) provides that unless stayed by a court under paragraph (g) of section 1377 of the Safety and Soundness Act (12 U.S.C. 4636a(g)), any suspension order issued under paragraph (b) shall remain in effect and enforceable until the Director dismisses the charges set out in the notice served under paragraph (a)(1) of this section or the effective date of the order issued under paragraph (b) [sic]. 25 See 12 U.S.C. 4636a(b)(2)(B). 25 The reference should be to paragraph (c) of section 1377 of the Safety and Soundness Act (12 U.S.C. 4636a(c)), which concerns final orders. Under section 1377(b)(3) of the Safety and Soundness Act (12 U.S.C. 4636a(b)(3)), if the Director issues an order under paragraph (b) of this section, the Director shall serve a copy of such order upon any regulated entity with which the subject of the order is affiliated at the time the order is issued. Section 1377(c) of the Safety and Soundness Act (12 U.S.C. 4636a(c)) governs the process for providing notice, setting the hearing, and issuing the order. Specifically, section 1377(c) of the Safety and Soundness Act sets the requirements for: (1) The notice—under section 1377(a) of the Safety and Soundness Act the notice shall contain a statement of the facts constituting grounds for such action and fix a time and place at which a hearing is to be held on the action; (2) the timing of the hearing—the same thirty (30) to sixty (60) day requirement as that pertaining to cease and desist orders, unless a request is made (by the party receiving the notice upon a showing of good cause, or the U.S. Attorney General) for an earlier or later date for the hearing to occur; (3) establishing consent of the party—a party shall be deemed to consent to the order by failing to appear; (4) issuance of an order of suspension—the Director may issue an order as he deems it appropriate if the party is deemed to consent or if the Director finds any of the grounds specified in the notice have been established upon the record developed at the hearing; and (5) effectiveness of an order—at the expiration of a thirty (30) day period after service upon the relevant regulated entity and the party, except where a party has consented, in which case the order shall become effective at the time stated in the order. Additionally, under section 1377(c)(5) of the Safety and Soundness Act (12 U.S.C. 4636a(c)(5)), the order remains effective and enforceable except to such extent as it is stayed, modified, terminated, or set aside by action of the Director or a reviewing court. Section 1377(d) of the Safety and Soundness Act (12 U.S.C. 4636a(d)) specifies the activities that any person subject to a removal or suspension order under this section is prohibited from undertaking. Persons subject to these orders are barred from participating in conducting the affairs of a regulated entity or the Office of Finance, and they may not exercise any proxy or voting rights or violate any voting agreement previously approved by the Director with respect to a regulated entity, or vote for a director or serve in any capacity as an entity-affiliated party of a regulated entity or the Office of Finance. Section 1377(e) of the Safety and Soundness Act (12 U.S.C. 4636a(e)) bars a person subject to a removal or suspension order from participating in the conduct of the affairs of a regulated entity or the Office of Finance. See 12 U.S.C. 4636a(e)(1). An exception is made where the Director provides his written consent, in which case the order—to the extent of the consent—shall cease to apply to the party and the consent shall be made public. See 12 U.S.C. 4636a(e)(2). Any violation of the prohibition on participating in the affairs of the regulated entity or the Office of Finance by any entity-affiliated party charged with a felony who is subject to a suspension or removal order under section 1377(h) of the Safety and Soundness Act (12 U.S.C. 4636a(h)) shall be treated as a violation of that order. See 12 U.S.C. 4636a(e)(3). Section 1377(f) of the Safety and Soundness Act (12 U.S.C. 4636a(f)), states that the removal provisions apply to individuals only—unless the Director specifically finds that the provisions should apply to a corporation, firm, or other business entity. See 12 U.S.C. 4636a(f). Section 1377(g) of the Safety and Soundness Act (12 U.S.C. 4636a(g)) authorizes a subject of a removal or suspension order under this section to seek an injunction to stay the suspension or prohibition order pending completion of the administrative hearing to be held under section 1377(c) of the Safety and Soundness Act (12 U.S.C. 4636a(c)). This grant of subject matter jurisdiction to the United States District Court for the District of Columbia, or the United States district court for the judicial district in which the regulated entity is headquartered, is limited to the authority to stay the suspension or prohibition. See 12 U.S.C. 4636a(g). It should not be read to confer jurisdiction over the underlying enforcement hearing. Section 1209.9 Supervisory Actions Not Affected This section underscores the independence of the Director to take such regulatory, supervisory, or enforcement action, as deemed necessary and in accordance with the Safety and Soundness Act or the Bank Act. In addition to the plenary regulatory and supervisory authority of the Director under section 1311(b)(1) of the Safety and Soundness Act (12 U.S.C. 4511(b)(1)), under section 1311(b)(2) of the Safety and Soundness Act the Director has express regulatory authority over the regulated entities and Office of Finance to ensure that the purposes of the Safety and Soundness Act, the authorizing statutes, and any other applicable law are carried out. (12 U.S.C. 4511(b)(2)). Moreover, section 1311(c) of the Safety and Soundness Act (12 U.S.C. 4511(c)) preserves the Director's ability to avail himself of any of the broad powers conferred in the Safety and Soundness Act. Under section 1311(c) of the Safety and Soundness Act (12 U.S.C. 4511(c)), the Director may take any regulatory or supervisory action under section 1311(b) of the Safety and Soundness Act (12 U.S.C. 4511(b)), notwithstanding any action related to capital adequacy that may be taken under sections 1361 through 1369E of the Safety and Soundness Act (12 U.S.C. 4612 et seq. ) or any enforcement action taken under sections 1371 through 1379E of the Safety and Soundness Act (12 U.S.C. 4631 through 4641). Thus, the Director's authority under subtitle B of the Safety and Soundness Act to set capital requirements for the regulated entities, to enter into enforceable written agreements, to appoint FHFA as conservator or receiver for a regulated entity, and to take enforcement actions under specified conditions, does not limit his general regulatory authority over the regulated entities and the Office of Finance. Similarly, the Director's authority under sections 1371 through 1379E of the Safety and Soundness Act (12 U.S.C. 4631 through 4641) to prosecute administrative enforcement actions by serving a notice of charges to enforce any provision or requirement of the Safety and Soundness Act, or other applicable standard, is independent of and does not limit his general supervisory or regulatory authority. Indeed, the selection of one form of supervisory or regulatory action or a combination of actions is within the discretion of the Director, and does not foreclose the Director from pursuing any other supervisory or regulatory action authorized by law. Subpart C—Rules of Practice and Procedure for Hearings on the Record Section 1209.10 Authority of the Director This section makes clear that enforcement proceedings are under the general authority of the Director to allow for interlocutory appeals or to permit actions to be performed before the appointment of the presiding officer. The Director may perform, direct the performance of, or waive performance of any act that could be done or ordered by the presiding officer. This promotes efficiency in the hearing process, and should not be read to create an inherent, institutional bias on the part of the Director. Section 1209.11 Authority of the Presiding Officer This section states that hearings are to be held in accordance with the APA, and provides that the presiding officer is to have complete charge of the proceedings, to act in a fair and impartial manner, and to ensure that a full and complete record of the proceeding is made. This section lists the powers of the presiding officer to control the proceedings. First among these is the authority of the presiding officer to set the date, time, and place (within the District of Columbia) of the testimonial phase of the hearing process, i.e., evidentiary hearing. Consistent with § 1209.23, the appearance hearing is to be set in the scheduling order issued by the presiding officer following the initial scheduling conference that must be held no later than sixty (60) days from the date of service of the notice of charges, notice of intention to assess a civil money penalty, or notice of intention to suspend or remove a party as provided in the Safety and Soundness Act. In accordance with § 1209.11(b)(1) setting of the evidentiary hearing may occur sooner upon motion of the respondent, or otherwise as the presiding officer finds in the best interest of justice. The section prescribes the presiding officer's authority to: reset, continue, or recess the hearing in whole or in part for a reasonable period of time; hold conferences to ensure the legal, factual, or evidentiary issues addressed are materially relevant to the charges or allowable defenses; administer oaths and affirmations; issue and enforce subpoenas, subpoenas duces tecum, and discovery and protective orders, or modify, revoke, or quash such subpoenas; take and preserve testimony under oath; rule on motions, except that only the Director may dismiss the proceeding or make a final determination on the merits; take all actions necessary to regulate the scope, timing, and completion of discovery of any non-privileged matter that is materially relevant to the charges or allowable defenses; rule upon the admissibility of evidence, and exclude or limit evidence; regulate the course of the testimonial phase of the hearing; examine witnesses; upon motion of a party, take judicial notice of a fact; prepare and present to the Director a recommended decision; and establish the time, place, and limitations on public and media attendance at public proceedings. 26 26 This section reflects both the analogous provision in the Uniform Rules, and instructive portions of the Manual for Administrative Law Judges (Third Edition), the last official edition of the “Manual for Administrative Law Judges,” published by the Administrative Conference of the United States. The Third Edition was edited and resurrected as the “2001 Interim Internet Edition,” Morrell E. Mullins, ed. (Interim Manual). The preface to the Interim Manual traces the history of the manual and its application in administrative law practice. Section 1209.12 Public Hearings; Closed Hearings Generally, appearance hearings are to be open to the public. But this section also reflects the authority of the Director, under section 1379B(b) of the Safety and Soundness Act (12 U.S.C. 4639(b)), to determine that holding an open hearing would be contrary to the public interest, and provides appropriate mechanisms for making and implementing such determinations. To make the determination, the Director must receive the party's motion, opposing briefs, and a recommended decision, from the presiding officer. A determination by the Director under this section is not a reviewable final agency action. The authority to file documents under seal is reserved to agency counsel, who must make a written determination that the disclosure of the document would be contrary to the public interest. The presiding officer must preserve the confidentiality of the document and, if needed, issue a protective order that is acceptable to FHFA counsel of record. If a hearing is to be closed for the purpose of introducing testimony or documents filed under seal, certain prescriptive procedures (such as the Methods of Handling Confidential Information of general applicability in administrative proceedings under the Interim Manual) are to be followed. In any event, the presiding officer is bound to ensure that any objections to the introduction of confidential information or testimony into evidence will not obstruct the prosecution of the enforcement case. Section 1209.13 Good Faith Certification This section sets out the requirement that any filing or submission for the record must be signed by the movant's representative of record—or a party appearing pro se —to effectively certify that the pleading or motion is offered in good faith and not for any improper purpose. That certification is also imputed to any oral motion and or argument. The presiding officer must strike any unsigned document if it is not signed promptly after the omission is brought to the movant's attention. Section 1209.14 Ex Parte Communications This section defines and prohibits ex parte communications, and provides for procedures for dealing with such communications, including sanctions. The phrase “may be reasonably expected to be involved” suffices to protect contacting parties who could not reasonably be expected to know that an agency employee might be involved in the decisional process. FHFA thus intends to insulate those who lack sufficient notice of the exclusion, for example if their work is provided to the Director or a decisional employee after it was submitted to the agency in the usual course of business. This section also provides for the separation of functions of Agency personnel. Any employee or agent of FHFA that participated in the examination, investigative, or prosecutorial functions on the case may not participate in or advise in the recommended decision or the Directors' decision on the final determination (analysis of settlement offers and regulatory or supervisory matters are excepted from this prohibition). Section 1209.15 Filing of Papers This section, which specifies the filing requirements for papers, pleadings, motions, and memoranda in any proceeding governed by subpart C of this part, was updated to reflect electronic filing practices. Section 1209.16 Service of Papers This section, which specifies the service requirements for papers, pleadings, motions, and memoranda in any proceeding governed by subpart C of this part, was updated to reflect electronic service practices. Section 1209.17 Time Computations This section sets out the general rule for computing any time period prescribed by subpart C of this part and states when filing or service are deemed to be effective. Additionally, this section was updated to reflect electronic service practices. The rule also provides that the prescribed effective filing and service dates may be modified by the presiding officer or by agreement of the parties in the case of service. Finally, the rule prescribes the method for calculating of time for service and filing of responsive papers. Section 1209.18 Change of Time Limits This section permits the presiding officer, upon a showing of good cause, to extend time limits set out in the regulation or any notice or order, either on a motion of a party or on his own initiative. Additionally, after the matter has been referred under § 1209.53 to the Director, the Director may also grant extensions of time. Section 1209.19 Witness Fees and Expenses This section specifies that the fees and expenses of witnesses shall be paid at the same rate as those paid in proceedings in United States district courts. Additionally, FHFA is not required to pay such fees in advance where FHFA has requested or issued the subpoena, and FHFA is not required to pay any fees or expenses of any witness who was not subpoenaed by FHFA. Section 1209.20 Opportunity for Informal Settlement This section permits any respondent at any time in the enforcement proceeding to make a written proposal for settlement without prejudice to any rights of any party. Any such settlement proposal, however, must be made only to FHFA counsel of record. Submission of a settlement offer does not operate to stay the proceeding or to provide a basis for adjourning or otherwise delaying the proceeding. Additionally, no settlement offer is admissible in any proceeding. Section 1209.21 Conduct of Examination This section clarifies that the prosecution of a notice of charges or a notice of imposition of a civil money penalty does not impact in any way FHFA's authority to continue or conduct any examination, investigation, inspection, or visitation of any regulated entity or entity-affiliated party authorized by law. Section 1209.22 Collateral Attacks on Adjudicatory Proceeding This section provides that the pendency in any court of a collateral attack on the enforcement proceeding shall have no effect on the enforcement proceeding which shall continue without regard to the collateral attack. Further, the section makes clear that a default or failure to act within timeframes and requirements prescribed in the administrative proceeding will not be excused on the basis of the collateral attack. Section 1209.23 Commencement of Proceeding and Contents of Notice of Charges This section states that an administrative enforcement proceeding is commenced by a notice of charges as defined in § 1209.3(p), and sets out the requirements for the contents of a notice of charges. In short, among other things, a notice must include: the legal authority for the proceeding; a statement of the law and fact showing that FHFA is entitled to relief; the relief sought; a statement that the presiding officer will set the date and location (within the District of Columbia) of the testimonial phase of the proceeding in a scheduling order to be issued in connection with the initial scheduling conference to be held thirty (30) to sixty (60) days from the date of service of the notice; contact information for the presiding officer and for FHFA counsel of record; citation to the Rules of Practice and Procedure; and a statement that the answer must be filed with the presiding officer within the time to file an answer as required by law or regulation. The rule also provides that the notice must include the time within which to request an earlier hearing. Ordinarily, however, such a request would be obviated by the scheduling conference and scheduling order. Section 1209.24 Answer This section provides that the respondent must file an answer within twenty (20) days of the service of the notice, unless the notice specifies otherwise, and sets out the required elements of a conforming answer. This section mandates that failure to file an answer within the required period constitutes a waiver of the respondent's right to appear and contest the allegations in the notice. FHFA counsel of record may file a motion for an entry of default, and the presiding officer, upon a finding of no good cause for the failure to answer, shall file a recommended decision with the findings and relief sought in the notice. A final order issued by the Director based on the respondent's failure to file an answer is deemed to be an order issued upon consent. Section 1209.25 Amended Pleadings This section allows for a notice or answer to be amended or supplemented at any stage in the proceeding, and states the deadline for an answer to an amended notice. The rule also provides guidance for when no formal amendment is necessary to conform such pleadings to the evidence and issues tried at the hearing. Additionally, the rule provides that the presiding officer may admit evidence despite timely objections (as to relevance or materiality with respect to issues raised in the notice of charges) when admission is likely to assist in adjudicating the merits of the action, if an objecting party fails to satisfy the presiding officer that the admission of such evidence would unfairly prejudice the party's action or defense upon the merits. In such cases, the presiding officer may grant a reasonable continuance to allow the objecting party to meet such evidence. Section 1209.26 Failure To Appear This section states that if a respondent fails to appear at a hearing in person or through a representative of record, that respondent waives his right to a testamentary hearing and is deemed to have admitted to all facts alleged and consented to the relief sought in the notice. As in the case where a respondent has failed to file an answer, the presiding officer shall file with the Director a recommended decision containing the findings and relief sought in the notice. Section 1209.27 Consolidation and Severance of Actions This section provides authority to the presiding officer, either upon a motion of a party or on his own initiative, to consolidate two or more proceedings (for some or all purposes), if the circumstances meet the stated test, unless consolidation would cause unreasonable delay or injustice. As to severance, however, the presiding officer may act only on a severance motion of a party if the presiding officer finds that undue prejudice or injustice to the moving party would result and would outweigh the interests of judicial economy in the complete and final resolution of the proceeding. Section 1209.28 Motions This section specifies that requests for an order must be in a written motion. The provision sets out the requirements for such motions, and provides that written memoranda, briefs, affidavits, or other relevant material may be submitted in support of a motion. On the other hand, the rule allows for oral motions to be made in a hearing, unless the presiding officer directs that the motion be reduced to writing. The rule has been revised to state that a response to a non-dispositive motion is due within ten (10) days, to distinguish it from a response to a dispositive motion, which is governed by § 1209.35, and to provide that reply briefs must be filed within five (5) days of a response, unless the presiding officer or Director orders otherwise. The rule also was revised to provide that the presiding officer shall consider responses of parties having an interest in a motion before ruling on an oral or a written motion. A party's failure to oppose a motion is deemed to be consent to the motion and the relief sought. The rule has been clarified to bar frivolous, dilatory, or substantively repetitive motions, and continues to provide that the filing of such motions may form the basis for sanctions. Section 1209.29 Discovery Section 1209.29 of the rule, which readopts § 1780.26 of the existing OFHEO rule, has been amended in part to reflect actual practice experience and to clarify that the presiding officer is charged with restricting discovery to any matter not privileged that is materially relevant to the charges or allowable defenses in a pending proceeding. In particular, any document request that seeks privileged information or internal FHFA communications not materially relevant as stated, or that otherwise is unreasonable in form, excessive in scope, unduly burdensome, or substantially repetitive of prior discovery requests, shall be denied or modified. Section 1209.29(a)(2) of the proposed rule is a new provision that requires the parties to meet and confer in good faith to agree upon and submit to the presiding officer a discovery plan for timely, cost-effective management of document discovery. This process was conceived to achieve the economies of pre-trial discovery embedded in similar requirements under the Federal Rules of Civil Procedure governing district court actions. Under this new provision, no party may commence discovery until the presiding officer has approved the parties' discovery plan. This process supports the authority of the presiding officer to control the proceedings and to minimize unnecessary or costly document discovery. In the absence of the parties' cooperation, however, the rule provides the presiding officer with ample authority to require the parties to conduct discovery in a reasonable manner. Under § 1209.29(b)(3), as modified, any request for document discovery is unreasonable, oppressive, excessive in scope, or unduly burdensome—and shall be denied or modified—if, among other things, the request: (i) Fails to include limitations on the relevant subject matter or time period covered; (ii) fails to identify documents with sufficient specificity to permit identification of the repositories of official agency records to be searched; (iii) seeks material that is duplicative, cumulative, or obtainable from another source that is more accessible, less burdensome, or less expensive; (iv) calls for the production of documents, whether in hard copy or in electronic format, to be delivered to the requesting party or his designee and fails to provide a written agreement by the requestor to pay in advance for the costs of production, in accordance with § 1209.30, or otherwise fails to take into account costs associated with processing electronically stored information or any cost-sharing agreement between the parties; (v) fails to afford the responding party adequate time to respond; or (vi) fails to take into account retention policies or security protocols with respect to Federal information systems. Discovery is limited to document requests. No other form of discovery is permitted; depositions (except as noted) and interrogatories are not permitted. This provision is not to be read to require the creation of any document. Additionally, this section reiterates that privileged documents are not discoverable. Applicable privileges include: attorney client, work product, and privileges available to government agencies ( e.g., deliberative process; examination; investigative; or any other privileges available under the U.S. Constitution, Federal law, or the principles of Federal common law). To preserve such privileges in productions, a new provision, § 1209.29(d)(1)(ii), provides that the parties may enter into so-called clawback agreements, and the presiding officer shall enter an order to ensure the enforceability of such agreements. Finally, § 1209.29(d)(2) is added to make clear that the limitations on the discovery process in this rule are not to be read otherwise to limit the examination, regulatory or supervisory authority of FHFA. Again, these provisions have been added to assist in resolving issues that may arise in practice under this rule. Time limits on discovery under § 1209.29(e) of the proposed rule require that all discovery shall be completed at least twenty (20) days prior to the commencement of the testimonial phase of the hearing, unless the presiding officer finds on the record that good cause exists for waiving the twenty (20) day requirement. Additionally, the provision that responsive documents be produced as maintained in the usual course of business, or labeled and organized to correspond to the document requests, was moved from its former place in OFHEO's existing rule, § 1780.27(a) of this title, to make it applicable to document requests that are addressed either to parties or to non-parties. Finally, a provision was added to permit the parties to agree upon the production of documents as organized or otherwise, consistent with the discovery plan, to provide more flexibility to the parties to make discovery productions less onerous or costly. Section 1209.30 Request for Document Discovery From Parties This section would adopt the existing OFHEO rule, § 1780.27 of this title, with certain changes to the time limits for filing motions to strike or to limit discovery requests, guidance for the presiding officer on ruling on such motions, and revised procedures for compelling production of documents by parties. The rule now specifically requires that all document discovery from parties must conform to these requirements and be consistent with the discovery plan approved by the presiding officer under § 1209.29. Any party served with a discovery request may object to all or part of such request within twenty (20) days of service of the request by filing a motion to strike or limit the request under § 1209.28, which will also govern responses and replies, if any. No other party may file an objection. Any objections that do not conform to these requirements are waived. The proposed rule recognizes instances where discovery may include electronically stored information, and the attendant costs and burdens. The rule adds a new provision to address the complexities and costs associated with the discovery of electronically stored information (e-discovery). In past practice, a party requesting document discovery was to agree in advance to pay for the costs of any document production— e.g., reproduction (photocopies or electronic), and the responding party was permitted to require receipt of payment of any such charges prior to production. While this process is still available, under the revised rule, parties may agree to cost-sharing, especially where multiple parties present overlapping discovery requests, consistent with the discovery plan approved by the presiding officer. In sum, the revisions are intended to encourage transparency and early cooperation of the parties to identify and resolve issues commonly encountered in e-discovery, and to develop a coherent and cost-effective search protocol and format of production (such as searchable formats, optical character recognition, or load files). This is particularly important where e-discovery may be problematic, too costly, or unduly burdensome. Section 1209.30(d) is amended to permit a party receiving a discovery request to respond within thirty (30) days with a motion to strike or limit the discovery requests, replacing the ten (10) days provided for in the prior rule. Section 1209.28 of the proposed rule governs responses to such motions and replies, if any. Section 1209.30(e) of the proposed rule governs the process for asserting privilege claims. A privilege log is required and documents may be identified by category on the log. The presiding officer has express discretion to determine when identification by category is sufficient. Section 1209.30(f) of the proposed rule provides that any motion to compel production must be filed in accordance with § 1209.28 within ten (10) days of the time of the assertion of the privilege or failure to produce is or becomes known to the requesting party. To oppose, the responding party must file a written response within five (5) days. Section 1209.30(g) of the proposed rule clarifies that the presiding officer may grant in part or otherwise modify any request for production of documents, or deny any request for the production of any document that is privileged or otherwise not within the scope of permissible discovery. The proposed rule also adds a provision stating expressly that the interlocutory appeal of a privilege determination or ruling on a motion for a protective order is to be in accordance with § 1209.33, and reiterates that under § 1209.33, interlocutory review of a privilege determination or document discovery request shall not stay the proceeding, unless ordered by the presiding officer or the Director. Under § 1209.30(h) of the proposed rule, pertaining to the enforcement of a document discovery subpoena, the Director or a party who obtained the subpoena may seek enforcement to the extent authorized under section 1379D(c)(1) of the Safety and Soundness Act (12 U.S.C. 4641(c)(1)) by seeking an order from the appropriate United States district court. Under § 1209.30(h)(2), the court's jurisdiction is limited to that remedy; the court will not gain jurisdiction to affect by injunction or otherwise the issuance or enforcement of any effective and outstanding notice or order issued by the Director under section 1313B, subtitle B, or subtitle C of the Safety and Soundness Act, or to review, modify, suspend, terminate, or set aside any such effective and outstanding notice or order. The proposed rule clarifies that seeking an order from a district court to enforce a subpoena or production order does not stay automatically the enforcement proceeding, unless the presiding officer or Director orders a stay. Finally, changes to the rule would make clear that the Director may order sanctions against a party who fails to produce or induces another to fail to produce subpoenaed documents. Section 1209.31 Document Discovery Subpoenas to Nonparties Section 1209.31 of the proposed rule governs document discovery subpoenas to nonparties. The proposed rule would adopt the existing rule with minor changes to headings and the addition of text requiring that the subpoenaing party seek only documents that are materially relevant to the charges and issues presented in the action, state its “unequivocal” intention to pay for document discovery of a non-party, and serve all other parties with the subpoena. The edits also make clear the discretion of the presiding officer to refuse to issue a subpoena to a non-party where the party's application for the subpoena does not set forth a valid basis of its issuance, or where the request is otherwise objectionable under § 1209.29(b). Section 1209.31(b) of the proposed rule governs motions to quash or modify a document subpoena, and adds a provision to allow a non-party to enter a limited appearance in the proceeding to challenge the subpoena directed to it. The non-party may raise objections that may be raised by a party under § 1209.30 within the same time deadlines. The revised provision permits the party seeking the subpoena to respond to the non-party's objections within ten (10) days of service of motion to quash or modify. Absent the express leave of the presiding officer, no other party may respond to the non-party's motion. Additionally, the pending motion shall not operate as a stay on the proceeding or in any way limit the presiding officer's authority to impose sanctions on a party who induces another to fail to comply with a subpoena. No party may rely on the pendency of a motion to quash or modify to excuse performance of any action required of that party under this part. Finally, enforcement of document subpoenas to non-parties also is authorized pursuant to section 1379D(c) of the Safety and Soundness Act (12 U.S.C. 4641(c)), and there is no automatic stay in that event. Here, again, a party's right to seek enforcement of a non-party document subpoena does not limit in any way the authority of the presiding officer to impose sanctions on a party who induces another to fail to comply with a subpoena. Section 1209.32 Deposition of Witness Unavailable for Hearing Section 1209.32 of the proposed rule provides for a subpoena to compel the attendance at a deposition of a witness who will not be at the evidentiary hearing in order to preserve the testimony of that witness for the record. The existing proposed rule would adopt existing provision with only two changes. First, the proposed rule would amend the existing rule to require that a witness unavailable for the hearing must have personal knowledge of the facts and that the testimony is reasonably expected to be materially relevant to claims, defenses, or matters determined to be at issue. This requirement parallels the presiding officer's authority to control the proceedings and ensure that only materially relevant evidence is adduced. Second, a requirement is added to create a full written record; recorded or videotaped depositions must be transcribed and copies of the recordings or videotapes and the transcriptions must be provided to each party. Section 1209.33 Interlocutory Review Section 1209.33 of the proposed rule prescribes the circumstances under which the Director may exercise interlocutory review of a ruling of the presiding officer prior to the certification of the record. The existing provision is adopted as stated. Section 1209.34 Summary Disposition Section 1209.34 of the proposed rule states the test for an order granting a motion for summary disposition of the matter and the process for hearing and deciding such motions. The existing provision is adopted with one change; the time period for filing a response to a dispositive motion is extended to thirty (30) days, in order to provide sufficient time to respond to arguments that may present novel or complex issues. Section 1209.35 Partial Summary Disposition Section 1209.35 of the proposed rule states that if the presiding officer determines that some of the claims are subject to summary disposition a hearing on the remaining claims shall be conducted, and following that, the recommended decision will address all of the claims. The proposed rule would adopt the existing provision as stated. Section 1209.36 Scheduling and Pre-Hearing Conferences Section 1209.36 sets out how the presiding officer manages the scheduling and pre-hearing conferences and the issuance of scheduling and pre-hearing orders. The proposed rule would adopt the existing provision with one change: paragraph (a) “scheduling conference” would be edited to conform to the proposed powers of the presiding officer. As proposed, it specifies that within thirty (30) days of service of the notice of charges, the presiding officer is to require each party or the party's representative to participate (in person or via teleconference at the option of the presiding officer) in an initial scheduling conference for the purpose of setting the time and place of the evidentiary hearing in the District of Columbia. In connection with this initial scheduling conference, the presiding officer will determine the course and conduct of the proceeding. Section 1209.37 Pre-Hearing Submissions Section 1209.37 of the proposed rule states the required submissions and sets the deadline for service of these items by each party on every other party. The existing provision, as stated, would be adopted. Section 1209.38 Hearing Subpoenas Section 1209.39 of the proposed rule sets forth the process for applying for a hearing subpoena and the circumstances under which the presiding officer may refuse to issue a subpoena or require a modification of a proposed subpoena. The provision would be adopted, as set forth in the existing provision with minor technical edits. Sections 1209.39 Through 1209.49 [Reserved] Section 1209.50 Conduct of Hearings Section 1209.50 of the proposed rule prescribes the general rules for hearings, and the specific rule pertaining to the order of the hearing, the examination of witnesses, stipulations, and the hearing transcript. The existing provision would be adopted, as stated. Section 1209.51 Evidence Section 1209.51 of the proposed rule sets out the requirements for the admissibility of evidence, official notice, the introduction of documentary evidence, objections to the introduction of evidence, stipulations, and depositions of unavailable witnesses. The provision would be adopted, as stated in the existing provision with minor technical edits to require that stipulations as to any document to be admitted into evidence be made a part of the record. Section 1209.52 Post-Hearing Filings Section 1209.52 of the proposed rule establishes the briefing process and schedule for filing proposed findings and conclusions and supporting briefs. The provision would be adopted, as stated in the existing provision with minor technical edits to re-set filing deadlines as follows: proposed findings of fact and conclusions of law are to be filed with the presiding officer within thirty (30) days of receiving the notice that the transcript was filed with the presiding officer. The filing deadline was extended to ensure the parties would have sufficient time to address novel or complex issues of law or fact. Similarly, the response deadline was extended to fifteen (15) days. The requirement that reply briefs be limited to responding to new matters also was strengthened. Section 1209.53 Recommended Decision and Filing of Record Section 1209.53 of the proposed rule prescribes the process and time deadlines for the presiding officer to file the recommended decision and record with the Director. The provision would be adopted, as stated in the existing provision with minor technical edits to reset the filing deadline at forty-five (45) days after expiration of the time allowed for filing briefs. The filing deadline proposed time is extended to ensure that the presiding officer is afforded sufficient time to address multiple parties' arguments, complex factual matters, or novel legal issues that may arise in any given proceeding. Section 1209.54 Exceptions to Recommended Decision Section 1209.54 of the proposed rule establishes the process and time deadlines for the parties to respond to the presiding officer's recommended decision. The provision would be adopted, as stated in the existing provision with minor technical edits to reset the filing deadline at thirty (30) days after service of the recommended decision. The filing deadline was extended to afford the parties sufficient time to address issues raised in the recommended decision. Section 1209.55 Review by Director Section 1209.55 of the proposed rule provides for the Director to serve notice on the parties when the record is determined to be complete, allows that the Director may permit the parties to give an oral argument on the issues, and states the process for rendering the final decision. The provision would be adopted, as stated in the existing provision with minor technical edits to re-set the deadline for rendering the decision at ninety (90) days after notification to the parties that the case has been submitted for final decision. The time period was adjusted to enable the Director adequately to address any issue that may be presented by an enforcement action under the rule. Section 1209.56 Exhaustion of Administrative Remedies Section 1209.56 of the proposed rule provides that to meet the exhaustion requirement, a party must file with the Director exceptions to the recommended decision. This is a precondition to seeking judicial review of any decision issued by the Director under this part. Section 1209.57 Stays Pending Judicial Review Section 1209.57 of the proposed rule provides that the commencement of an action for judicial review does not operate as a stay of the Director's determination unless the Director orders a stay. As proposed, the existing provision would be adopted, as stated with no changes. Sections 1209.58 Through 1209.69 [Reserved] Subpart D—Parties and Representational Practice Before the Federal Housing Finance Agency; Standards of Conduct Section 1209.70 Scope Subpart D of this part contains rules governing practice by parties or their representatives before FHFA in an adjudicatory proceeding and standards of conduct under this part and in any appearance before the Director or any agency representative. This subpart outlines the sanctions that may be prescribed by a presiding officer or the Director against parties or their representatives who fail to conform to the requirements and conduct guidelines; such representation includes, but is not limited to, the practice of attorneys and accountants. Employees of FHFA are not subject to disciplinary proceedings under this subpart. This subpart, as proposed, would adopt the existing provision with minor edits as noted. Section 1209.71 Definitions Section 1209.71 of the proposed rule would adopt the existing rule provision that defines practice before FHFA, with minor edits to reflect that the representation is with reference to regulated entities or entity-affiliated parties, rather than the Enterprises. The definition excludes any work prepared for a regulated entity or entity-affiliated party solely at the request of such party for use in the ordinary course of its business. Section 1209.72 Appearance and Practice in Adjudicatory Proceedings Section 1209.72 of the proposed rule would adopt, without amendment, the existing provision that delimits the representational practice of attorneys and non-attorneys before FHFA. A party may appear pro se. In the event of a pending proceeding any person appearing shall file a notice of appearance. The provision prescribes the requirements for such notices. Section 1209.73 Conflicts of Interest Section 1209.73 of the proposed rule would adopt, without amendment, the existing rule provision that sets out the prohibition on conflicts in representation and specifies applicable requirements pertaining to certification and waiver. Section 1209.74 Sanctions Section 1209.74 of the proposed rule would adopt the existing rule provision governing appropriate sanctions that may be imposed during the course of any proceeding when any party or representative of record has acted or failed to act in a manner clearly required by applicable statute, regulation, or order, and that act or failure to act constitutes contemptuous conduct, with minor technical edits. The edits clarify that such conduct may occur in connection with any phase of any proceeding, hearing, or appearance before a presiding officer or the Director. The proposed rule would reissue the definitions of contemptuous conduct, the procedure for imposition of sanctions, and sanctions for contemptuous conduct, without change. Section 1209.75 Censure, Suspension, Disbarment, and Reinstatement Section 1209.75 of the proposed rule would adopt, with minor edits, the existing rule provision governing the circumstances under which the Director may censure any individual who practices or attempts to practice before FHFA, or suspend or revoke the privilege to appear or practice before FHFA, after notice and a hearing in the matter. The edit clarifies that legal or regulatory violations may pertain to any applicable law. Additionally, the proposed rule mirrors the existing rule in setting out the bases for mandatory suspension and debarment, and the requirements pertaining to notices, applications for reinstatement, hearings, and conferences in proceedings under Subpart D of this part. Sections 1209.76 Through 1209.79 [Reserved] Subpart E—Civil Money Penalty Inflation Adjustments Section 1209.80 Inflation Adjustments Section 1209.80 of the proposed rule would adopt, with minor edits, the existing rule provision governing the maximum amount of each civil money penalty within FHFA's jurisdiction, as set by the Safety and Soundness Act and thereafter adjusted in accordance with the Inflation Adjustment Act. In a change from the existing rule, the proposed rule establishes this process in subpart E to facilitate subsequent technical penalty amount adjustments as provided by law. Section 1209.81 Applicability Section 1209.81 of the proposed rule would adopt, with minor edits, the existing provision stating it is applicable to civil money penalties under section 1376 of the Safety and Soundness Act (12 U.S.C. 4636) for violations occurring after July 30, 2008, the effective date of HERA. Sections 1209.82 Through 1209.99 [Reserved] Subpart F—Suspension or Removal of Entity-Affiliated Party Charged With Felony Section 1209.100 Scope As proposed, new subpart F would adopt the requirements under section 1377(h) of the Safety and Soundness Act, as amended, governing informal hearings to be afforded to any entity-affiliated party who has been suspended, removed or prohibited from further participation in the business affairs of a regulated entity by a notice or order issued by the Director in accordance with section 1377(h)(4) of the Safety and Soundness Act (12 U.S.C. 4636a(h)). Importantly, the statute does not require a hearing on the record, thus the formal hearing procedures in subpart C are not applicable to proceedings under section 1377(h) of the Safety and Soundness Act. All that is required is an informal hearing that satisfies the basic elements of due process, notice and opportunity to respond. Subpart F establishes that informal hearing process. Section 1209.101 Suspension, Removal, or Prohibition Section 1209.101 of the proposed rule implements section 1377(h) of the Safety and Soundness Act and prescribes the circumstances under which the Director may suspend, remove, or prohibit the further participation of an entity-affiliated party who has been charged, in any information, indictment, or complaint, with the commission of or participation in a crime that involves dishonesty or breach of trust that is punishable by imprisonment for more than one (1) year under State or Federal law. The rule requires a notice or an order of removal, as appropriate, and prescribes the effective period, as well as the effect of acquittal. The notice must state the basis for the suspension and the right of the party to request an informal hearing as provided in § 1209.102. Section 1209.102 Hearing on Removal or Suspension Section 1209.102 of the proposed rule sets forth the requirements for an informal hearing on a removal or suspension under section 1377(h) of the Safety and Soundness Act (12 U.S.C. 46436a(h)), and the timing and procedural matters of such hearings. An APA-type full evidentiary hearing on the record is not required under the Safety and Soundness Act. But the hearing prescribed under this section will meet the essential notice and opportunity to respond requirements of due process. Therefore, the requirements as to form, timing, conduct, submissions, and the record of the hearing, are specified in this provision. The proposed rule allows that an entity-affiliated party may elect in writing to waive his right to appear in person or through counsel to make a statement and to have the matter determined solely on the basis of his written submission. A new provision clarifies that the purpose of the informal hearing is to determine whether the suspension or prohibition will be continued, modified, or terminated, or whether an order removing such party or prohibiting the party from participation in the affairs of the regulated entity will be rescinded or modified. An action by the Director under this section shall not be deemed as a predicate or a bar to other regulatory, supervisory or enforcement action under the Safety and Soundness Act. Section 1209.103 Recommended and Final Decisions Section 1209.103 of the proposed rule sets forth the requirements for the recommended decision of a presiding officer. Under this provision the parties are afforded a five (5) day comment period, comments on the recommended decision are directed to the presiding officer, and no extensions of the stated time period are permitted. The decision of the Director is provided in writing to the entity-affiliated party within sixty (60) days. The decision is a final, non-appealable order. An individual who has been suspended or removed by order of the Director may request reconsideration of such an order under the prescribed requirements. There is no hearing on a petition for reconsideration, and the Director will inform the requestor of the disposition of the request in a timely manner. A decision on a request for reconsideration shall not constitute an appealable order. V. Regulatory Impact Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires that a regulation that has a significant economic impact on a substantial number of small entities, small businesses, or small organizations must include an initial regulatory flexibility analysis describing the regulation's impact on small entities. Such an analysis need not be undertaken if the agency has certified that the regulation will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the proposed regulation under the Regulatory Flexibility Act. FHFA certifies that the proposed regulation, if adopted, is not likely to have a significant economic impact on a substantial number of small business entities because the regulation applies to the Enterprises and Banks, which are not small entities for purposes of the Regulatory Flexibility Act. 5 U.S.C. 605(b). List of Subjects 12 CFR Part 908 Administrative practice and procedure, Federal home loan banks, Penalties. 12 CFR Part 1209 Administrative practice and procedure, Federal home loan banks. 12 CFR Part 1780 Administrative practice and procedure, Penalties. Accordingly, for the reasons set forth in the preamble, under the authority of 12 U.S.C. 4513b and 4526, the Federal Housing Finance Agency proposes to amend chapters IX, XII, and XVII of Title 12, Code of Federal Regulations, as follows: CHAPTER IX—FEDERAL HOUSING FINANCE BOARD Subchapter B—Federal Housing Finance Board Organization and Operations PART 908—[REMOVED] 1. Remove 12 CFR Part 908. CHAPTER XII—FEDERAL HOUSING FINANCE AGENCY Subchapter A—Organization and Operations 2. Add part 1209 to subchapter A to read as follows: PART 1209—RULES OF PRACTICE AND PROCEDURE Subpart A—Scope and Authority Sec. 1209.1 Scope. 1209.2 Rules of construction. 1209.3 Definitions. Subpart B—Enforcement Proceedings Under Sections 1371 Through 1379D of the Safety and Soundness Act 1209.4 Scope and authority. 1209.5 Cease and desist proceedings. 1209.6 Temporary cease and desist orders. 1209.7 Civil money penalties. 1209.8 Removal and prohibition proceedings. 1209.9 Supervisory actions not affected. Subpart C—Rules of Practice and Procedure 1209.10 Authority of the Director. 1209.11 Authority of the Presiding Officer. 1209.12 Public hearings; Closed hearings. 1209.13 Good faith certification. 1209.14 Ex parte communications. 1209.15 Filing of papers. 1209.16 Service of papers. 1209.17 Time computations. 1209.18 Change of time limits. 1209.19 Witness fees and expenses. 1209.20 Opportunity for informal settlement. 1209.21 Conduct of examination. 1209.22 Collateral attacks on adjudicatory proceeding. 1209.23 Commencement of proceeding and contents of notice of charges. 1209.24 Answer. 1209.25 Amended pleadings. 1209.26 Failure to appear. 1209.27 Consolidation and severance of actions. 1209.28 Motions. 1209.29 Discovery. 1209.30 Request for document discovery from parties. 1209.31 Document discovery subpoenas to nonparties. 1209.32 Deposition of witness unavailable for hearing. 1209.33 Interlocutory review. 1209.34 Summary disposition. 1209.35 Partial summary disposition. 1209.36 Scheduling and pre-hearing conferences. 1209.37 Pre-hearing submissions. 1209.38 Hearing subpoenas. 1209.39-49 [Reserved]. 1209.50 Conduct of hearings. 1209.51 Evidence. 1209.52 Post-hearing filings. 1209.53 Recommended decision and filing of record. 1209.54 Exceptions to recommended decision. 1209.55 Review by Director. 1209.56 Exhaustion of administrative remedies. 1209.57 Stays pending judicial review. 1209.58-69 [Reserved]. Subpart D—Parties and Representational Practice Before the Federal Housing Finance Agency; Standards of Conduct 1209.70 Scope. 1209.71 Definitions. 1209.72 Appearance and practice in adjudicatory proceedings. 1209.73 Conflicts of interest. 1209.74 Sanctions. 1209.75 Censure, suspension, disbarment, and reinstatement. 1209.76-79 [Reserved]. Subpart E—Civil Money Penalty Inflation Adjustments 1209.80 Inflation adjustments. 1209.81 Applicability. 1209.82-99 [Reserved]. Subpart F—Suspension or Removal of an Entity-Affiliated Party Charged With Felony 1209.100 Scope. 1209.101 Suspension, removal, or prohibition. 1209.102 Hearing on removal or suspension. 1209.103 Recommended and final decisions. Authority: 5 U.S.C. 551, 556, 557 and 701 et seq.; 12 U.S.C. 4501, 4503, 4511, 4513, 4513b, 4517, 4526, 4531, 4535, 4536, 4581, 4585, 4631-4641; and 28 U.S.C. 2461 note. Subpart A—Scope and Authority § 1209.1 Scope. (a) Authority. This part sets forth the Rules of Practice and Procedure in accordance with the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, title XIII of the Housing and Community Development Act of 1992, Public Law 102-550, sections 1301 et seq., codified at 12 U.S.C. 4501 et seq., as amended (the “Safety and Soundness Act”). 1 1 As used in this part, the “Safety and Soundness Act” means the Federal Housing Enterprise Financial Safety and Soundness Act of 1992, as amended. See 12 CFR 1209.3. The Safety and Soundness Act was amended by the Housing and Economic Recovery Act of 2008, Public Law 110-289, sections 1101 et seq., 122 Stat. 2654 (July 30, 2008) (HERA). Specifically, sections 1151 through 1158 of HERA amended sections 1371 through 1379D of the Safety and Soundness Act (codified at 12 U.S.C. 4631 through 4641) (hereafter, “Enforcement Proceedings”). (b) Enforcement Proceedings. Subpart B of this part (Enforcement Proceedings under sections 1371 through 1379D of the Safety and Soundness Act) sets forth the statutory authority for enforcement proceedings under sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641) (Enforcement Proceedings). (c) Rules of Practice and Procedure. Subpart C of this part (Rules of Practice and Procedure) prescribes the general rules of practice and procedure applicable to adjudicatory proceedings that the Director is required by statute to conduct on the record after opportunity for a hearing under the Administrative Procedure Act, 5 U.S.C. 554, 556, and 557, under the following statutory provisions: (1) Enforcement proceedings under sections 1371 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2010-19567. Public record. Not legal advice.