Rules of Practice and Procedure

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1780

RIN 2550-AA04

Rules of Practice and Procedure

AGENCY: Office of Federal Housing Enterprise Oversight, HUD.

ACTION: Final rule.

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SUMMARY: The Office of Federal Housing Enterprise Oversight (OFHEO) is

issuing a final rule that establishes the rules of procedure to be

followed when OFHEO conducts hearings on the record and rules of

practice before OFHEO. The rule implements the provisions of title XIII

of the Housing and Community Development Act of 1992, known as the

Federal Housing Enterprises Financial Safety and Soundness Act of 1992,

regarding hearings on the record in certain enforcement actions against

the Federal National Mortgage Association, the Federal Home Loan

Mortgage Corporation, or directors or executive officers of the

Enterprises. The rule provides OFHEO personnel, the Enterprises, the

Enterprises' directors and executive officers, and other interested

parties with the guidance necessary to prepare for and participate in

such hearings.

EFFECTIVE DATE: January 27, 2000.

FOR FURTHER INFORMATION CONTACT: David A. Felt, Associate General

Counsel, Office of Federal Housing Enterprise Oversight, 1700 G Street,

NW., Fourth Floor, Washington, DC 20552, telephone (202) 414-3829 (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. Background

II. Comments on the Proposed Rules of Practice and Procedures

III. Synopsis of the Final Rule

IV. Regulatory Impact

I. Background

Title XIII of the Housing and Community Development Act of 1992,

Pub. L. No. 102-550, known as the Federal Housing Enterprises Financial

[[Page 72502]]

Safety and Soundness Act of 1992 (1992 Act), established OFHEO as an

independent office within the Department of Housing and Urban

Development (HUD) to ensure that the Federal National Mortgage

Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation

(Freddie Mac) (collectively, the Enterprises) are capitalized

adequately and operated in a safe and sound manner. Subsection 1313(b)

of the 1992 Act refers to certain authorities that the Director of

OFHEO (Director) may exercise exclusive of the Secretary of HUD

(Secretary) \1\ and other authorities that are subject to review and

approval by the Secretary.\2\ The Secretary's roles, duties, and

responsibilities may be delegated to the Director. Among the exclusive

authorities of the director is the authority to issue regulations to

carry out the duties of the Director under Subtitle C of the Act.\3\

Prior to issuing a cease-and-desist order, OFHEO must conduct hearings

on the record and provide the subjects of the order with notice and the

opportunity to participate in such hearings.\4\ Prior to imposing civil

money penalties, OFHEO must provide notice and the opportunity for a

hearing to the persons subject to the penalties.\5\ This final rule

provides the rules of practice and procedure that will be applied in

these hearings and any other hearings on the record that may be

conducted by the Director.

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\1\ 12 U.S.C. 4513(b).

\2\ Any determinations, actions or functions of the Director

that are not referred to in subsection 1313(b) are subject to the

review and approval of the Secretary. 1992 Act, section 1313(c) (12

U.S.C. 4513(c)).

\3\ 1992 Act, section 1313(b) (12 U.S.C. 4513(b)).

\4\ 1992 Act, section 1371 (12 U.S.C. 4631).

\5\ 1992 Act, section 1376 (12 U.S.C. 4636).

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Fannie Mae and Freddie Mac are Government-sponsored enterprises

with important public purposes. These purposes include providing

liquidity to the residential mortgage market and increasing the

availability of mortgage credit benefiting low- and moderate-income

families, rural areas, central cities, and areas that are underserved

by lending institutions. The Enterprises engage in two principal

businesses: investing in residential mortgages and guaranteeing

residential mortgage securities. The securities they guarantee and the

debt instruments they issue are not backed by the full faith and credit

of the United States.\6\ Despite the absence of such Federal backing,

prices of Enterprise debt securities reflect a market perception that

the U.S. Government has a strong interest in preventing a default by

either Enterprise. This perception principally arises from the public

purposes of the Enterprises, their Federal charters, their potential

access to a U.S. Treasury line of credit and the statutory exemptions

of their debt and mortgage-backed securities from otherwise mandatory

investor protection provisions.\7\ This perception is bolstered by

concern that the insolvency of either Enterprise would have serious

consequences for the nation's housing markets and financial system.

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\6\ Federal Home Loan Mortgage Corporation act, sections 301(4)

and 306(h)(2), (12 U.S.C. 1451 note (b)(3)-(4), 12 U.S.C.

1455(h)(2)); Federal National Mortgage Association Charter Act,

sections 301(4) and 304(b) (12 U.S.C. 1716(3)-(4), 12 U.S.C.

1719(b)); and 1992 Act, section 1302(4) (12 U.S.C. 4501(4)).

\7\ See, e.g., 12 U.S.C. 24 (authorizing unlimited investment by

national banks in obligations of, or issued by, the Enterprises); 12

U.S.C. 1455(g), 1719(d) and 1723c (exempting Enterprise securities

from oversight from Federal regulators); 15 U.S.C. 77r-l(a)

(preempting State law that would treat Enterprise securities

differently from obligations of the United States for investment

purposes); and 15 U.S.C. 77r-l(c) (exempting Enterprise securities

from State securities laws).

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On September 24, 1998 (63 FR 51031), OFHEO published a Notice of

Proposed Rulemaking (NPR) that included proposed Rules of Practice and

Procedure. The NPR proposed rules of procedure for hearings on the

record before OFHEO and rules of practice governing individuals who

practice before OFHEO. The comment period closed December 23, 1998.

OFHEO received comments from each Enterprise in response to the

proposed rulemaking. A discussion of those comments follows.

II. Comments on the Proposed Rules of Practice and Procedure

General Comments

Fannie Mae fully supported OFHEO's efforts to formalize the rules

of practice and procedure governing the conduct of hearings on the

record. Fannie Mae stated its belief that any such hearing in the

future would occur only in the most extraordinary of circumstances and

emphasized its commitment to working with OFHEO in a good faith,

constructive relationship. Fannie Mae offered various comments and

recommended a number of changes that Fannie Mae asserts would make the

rules more consistent with the Administrative Procedure Act (APA) \8\

and with the practices in place at the Federal banking agencies.

Although, as explained below, OFHEO does not share the view that

anything in the proposed rule was inconsistent with the APA, OFHEO

found that some of the recommended changes added clarity to the rule

and has incorporated them. Each of the recommendations is discussed in

detail below.

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\8\ 5 U.S.C. 500-559.

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Freddie Mac expected that administrative enforcement proceedings

would occur rarely, if ever, and that OFHEO would not consider

initiating such a proceeding until both sides have sought cooperatively

to resolve the matters at issue through alternative means. Freddie Mac

stated that if OFHEO were to initiate a hearing on the record, the

rules of practice and procedure should conform with OFHEO's statutory

enforcement authority and be suited to the potential issues and parties

to such a proceeding. In this regard, Freddie Mac recommended a number

of changes that would, in its view, improve the rules by fostering

early resolution, streamlining the provisions addressing sanctions to

limit sanctions against individuals to those necessary to conduct an

adjudicatory hearing or related proceedings, and ensuring fairness and

due process. As explained below, OFHEO has considered each of these

recommendations and, in response to some of them, has made changes in

the final rule.

Utilize Pre-Filing Submissions To Foster Early Resolution

Freddie Mac's comments encouraged OFHEO to adopt a procedure that

would allow a potential respondent to submit a written statement of its

position, prior to filing a formal notice of charges. Freddie Mac felt

that a prior submission could provide the agency with additional facts,

allow prompt and early correction of any miscommunication and point out

weaknesses in the agency's preliminary position. In these and other

ways, Freddie Mac suggests, the submission would assist OFHEO in making

a well-reasoned decision about whether to pursue an alternative

resolution or initiate a formal enforcement action. Freddie Mac cited a

statement by the Securities and Exchange Commission (SEC) as an example

of successful use of such prior submissions, which that agency has used

for more than 20 years to help determine whether to file or otherwise

initiate a formal proceeding.\9\

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\9\ Securities Act Release No. 5310, 38 FR 5457, Mar. 1, 1973.

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OFHEO shares Freddie Mac's desire to foster early resolution of

enforcement matters and to ensure well-reasoned decision-making in

determining whether to pursue formal enforcement actions. OFHEO has

reviewed the cited SEC release and the practices of other

[[Page 72503]]

agencies. None of those agencies has published a regulation providing

for submissions prior to a notice of charges. OFHEO will permit persons

involved in an investigation to present a statement to OFHEO setting

forth their interests and position. However, OFHEO cannot put itself in

a position where, as a result of the establishment of formal procedural

requirements, it would lose its ability to respond timely to actionable

activities or conditions. Accordingly, OFHEO will not include among its

procedural regulations a requirement that OFHEO obtain or solicit views

or statements from persons against which notices of charges are soon to

be issued.

Section 1780.1 Scope

Fannie Mae recommended that the term ``director of any Enterprise''

at Sec. 1780.1(b) be defined in order to ``clarify that the term

`directors' means members of the board of directors.'' The term, as

used in this section of the final rule, refers to sections 1371 and

1376 of the 1992 Act and is intended to have the same meaning as the

same term in the Act. Accordingly, OFHEO found it unnecessary to define

the term in the final rule.

Freddie Mac recommended that Sec. 1780.1 be amended to list civil

money penalty hearings under section 102 of the Flood Disaster

Protection Act of 1973, as amended, 42 U.S.C. 4012a, among the hearings

subject to the regulation. Although, as Freddie Mac noted, such

hearings would be covered by the catchall provision in the section,

OFHEO has incorporated the recommended change to make that coverage

explicit.

Section 1780.3 Definitions

Both Enterprises commented about proposed Sec. 1780.3(h), which

defined the term ``presiding officer'' to be ``an administrative law

judge or any other person designated by the Director to conduct a

hearing.'' Fannie Mae recommended that OFHEO specify that only an ALJ

should be permitted to conduct administrative hearings. Fannie Mae

included a description of the administrative law judge (ALJ) program

and opined that the APA does not contemplate that an agency head

appoint ``any person'' to preside over hearings conducted on the

record. Fannie Mae stated that the rule does ``not set forth any

justification for OFHEO's departure from the commonly understood rules

of the APA or from the practice of other safety and soundness

regulators.'' Fannie Mae asserts that allowing persons other than ALJs

to preside over hearings under the APA is inconsistent with accepted

APA principles and with the uniform practice of the Federal banking

agencies and HUD.

The use of the term ``any other person'' in Sec. 1780.3(h) of the

proposed rules was not intended to suggest that the Director might

ignore the APA or other applicable law in appointing presiding

officers. It was intended as a recognition that the APA includes

exceptions to the general rule that the agency (in the case of boards

or commissions), the agency head or an ALJ shall preside at a

hearing.\10\ For example, the regulations of the United States Office

of Personnel Management relating to ALJs also allow temporary

appointment of qualified Federal annuitants, described as ``senior

administrative law judges'' under certain circumstances.\11\ However,

in addressing Fannie Mae's comment, OFHEO has modified the language

permitting persons other than ALJs to act as presiding officers, as

discussed below.

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\10\ 12 U.S.C. 556(a).

\11\ 5 CFR 930.216.

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The use of the term ``any other person'' was not intended to imply

that the circumstances that would require these other types of

presiding officers are likely to occur in OFHEO enforcement

proceedings. Neither was it intended to take a legal position that

OFHEO did not consider its hearings to be governed by the APA or other

applicable laws (such as those listed at Sec. 1780.1). However, because

these rules are intended to have broad applicability to any hearings

that are required to be on the record, including any that might be

added by future legislation, OFHEO chose to provide maximum flexibility

under whatever law is applicable, now or in the future. To clarify this

point, OFHEO has replaced the phrase ``designated by the Director''

with ``appointed by the Director under applicable law.''

OFHEO agrees that the practice of the agencies cited by Fannie Mae

is to utilize ALJs. That would generally be OFHEO's practice also.

However, in drafting the definition of presiding officer, OFHEO looked

to the Uniform Rules of the Federal bank and thrift regulators. The

Uniform Rules, which use the term ``administrative law judge'' where

the OFHEO rules use ``presiding officer,'' define ``administrative law

judge'' to mean ``one who presides at an administrative hearing under

authority set forth at 5 U.S.C. 556.'' As explained above, that person

or body of persons need not always be an administrative law judge.

OFHEO has followed the same general approach, allowing for persons

other than an administrative law judge to preside, but only where they

can be appointed under applicable law.

Freddie Mac recommended that, to help ensure the fairness and

impartiality of administrative proceedings, the rule be changed to

insert the word ``neutral'' to describe the ALJ or other person. OFHEO

concurs with the Enterprises that any presiding officer should be

impartial and fair. However, OFHEO disagrees with Freddie Mac that

adding the word ``neutral'' to the regulation would further this goal.

The provisions of the APA that govern selection of presiding officers

and the conduct of hearings apply to proceedings under this final rule

and are sufficient to insure impartiality and fairness.

Sections 1780.5 Authority of the Presiding Officer and 1780.6 Public

Hearings

Each Enterprise commented that Sec. 1780.6(c) should be modified to

allow any party to request that documents be filed under seal. Fannie

Mae explained its view that confidentiality goes to the heart of the

fairness of a hearing and that allowing an agency, but not the other

parties, to file confidential documents is unfair. Freddie Mac also

felt that a change to allow all parties to request that a document be

filed under seal was necessary to ensure fairness to all parties.

OFHEO concurs with the need to ensure confidentiality of some

documents and testimony in adjudicatory proceedings and agrees that all

parties should be able to request confidentiality. Moreover, OFHEO

believes that the authority to order documents to be filed under seal

is among the inherent powers of the presiding officer under Sec. 1780.5

to conduct a hearing and to rule on motions or procedural matters.

However, in response to the comments, OFHEO has included some

additional language in the final rule. This language, which is drawn

from the Uniform Rules of the Federal financial institution regulatory

agencies, emphasizes the authority of the presiding officer to maintain

confidentiality of documents where appropriate. Specifically,

Sec. 1780.5(b)(5) now includes expressly the authority to issue

protective orders and Sec. 1780.5(b)(15) now includes expressly the

authority to establish time, place and manner limitations on the

attendance of the public and the media for any public hearing. These

changes clarify that the presiding officer may issue a protective order

to maintain

[[Page 72504]]

confidentiality of documents a party seeks to file or is required to

disclose in discovery. Further, these changes make explicit the

authority of the presiding officer to maintain confidentiality of those

documents by excluding the public from portions of a hearing where

those documents may be introduced or discussed.

Section 1780.10 Service of Papers

The Enterprises each commented upon proposed Sec. 1780.10. Freddie

Mac recommended that OFHEO customize the language of this section to

the Enterprises by requiring service by OFHEO upon the Enterprises or

other respondents at a designated office within each Enterprise.

Freddie Mac suggested that language in the rule that allows service by

delivery to a person of suitable age and discretion at the physical

location where the individual resides or works was unnecessary, because

service of all such individuals could be made at the designated office

of the appropriate Enterprise. Freddie Mac further recommended that

OFHEO designate a hearing clerk to receive and log in papers in

situations where a presiding officer has not yet been assigned. Fannie

Mae asked that OFHEO clarify proposed Sec. 1780.10(f), asserting that

the following language was confusing: ``Failure to make proof of

service shall not affect the validity of service. The presiding officer

may allow the proof to be amended or supplied, unless to do so would

result in material prejudice to a party.'' Fannie Mae asked why it was

necessary to supply proof of service at all if failure to do so does

not affect validity of service.

OFHEO does not believe it necessary to adopt the service rules

recommended by Freddie Mac. OFHEO retains discretion to determine how

best to serve a notice of charges against an Enterprise under

particular circumstances. After initial service, OFHEO anticipates that

counsel for the Enterprise would enter an appearance and service of all

documents would be upon counsel. With respect to service upon

individuals against whom charges are brought, the service rules are

tailored to make reasonably certain that the individual receives notice

of the documents served. OFHEO's enforcement authorities are not

limited to current Enterprise employees and the service rules must

reach all possible recipients of documents in an enforcement action,

including those who might seek to avoid service. Moreover, OFHEO does

not wish to preclude service by various reasonable means should

circumstances require it. Therefore, OFHEO has not modified the

language in the final rule to allow the Enterprises to designate a

particular office for service upon the Enterprise and individuals.

OFHEO finds it unnecessary to specify by rule an individual or an

office within OFHEO for service or filing of documents related to a

hearing. In enforcement proceedings, the Director will be represented

by enforcement counsel upon whom service may be made. If a presiding

officer is not named in the notice of charges, an appropriate address

for filing of an answer to the notice will be provided in the notice.

OFHEO concurs with Fannie Mae that Sec. 1780.10(f) of the proposed

rules could be clarified. The final rule, therefore, makes clear that a

party may contest service only by claiming that actual service was not

made. The term ``proof of service'' is used to mean an affidavit by a

nonattorney or a declaration of counsel, filed and served with the

pleading or other document, stating when and by what means the document

was served. Such an affidavit or declaration establishes prima facie

that service was made and shifts the burden to a party contesting

service to come forward with evidence that service did not occur. The

failure of a party to include a proof of service with the document

would not alone be sufficient to prove lack of service or cause the

filing of such a document to be ineffective. Service could, if

necessary, be proven by other means. However, a proof of service must

be filed before the presiding officer can take action upon a filing,

such as a motion, that seeks such action. This rule prevents action

being taken without notice being provided to the nonmoving parties.

Section 1780.15 OFHEO's Right To Conduct Examinations

Freddie Mac recommended that Sec. 1780.15 be revised to provide

that OFHEO's examination authority not be used for after-the-fact

gathering of evidence to support a notice of charges that has already

been issued. Freddie Mac stated that the Director must have reasonable

cause to believe that grounds exist for initiating an action by the

time the Director serves the notice.

OFHEO decided not to accept Freddie Mac's recommendation to modify

Sec. 1780.15 for a number of reasons. First, it would be inappropriate

and unprecedented for a Federal financial institution regulatory agency

to prevent itself from using the most recent factual information

available. The language in Sec. 1780.15 is drawn directly from the

Uniform Rules of the bank and thrift regulators and reflects normal

examination and enforcement practices. As a matter of practice, Federal

financial institution regulatory agencies generally do not issue

notices of charges until a supporting factual record is adequately

developed. In this regard, OFHEO would be no different from these other

regulatory agencies. However, OFHEO does not consider it unfair or

improper to allow relevant information to be introduced at hearing that

may have come to light from an examination conducted after the notice

of charges. Any such information would be available to all parties

through discovery. OFHEO's rules anticipate that additional facts may

come to light during the prehearing phase and the rules allow for

liberal amendments to notices of charges and answers to reflect those

newly discovered facts.

Further, because the purpose of cease and desist orders is largely

remedial, it is especially important in fashioning such an order that

the presiding officer and the Director understand any steps an

Enterprise may have undertaken (or not undertaken) to deal with the

problems at issue since the filing of the notice of charges. Current

practices at an Enterprise could also be relevant in determining the

appropriateness and size of civil money penalties. Examinations are an

important means of providing current information.

OFHEO is also concerned that any rule that limits the use of

current examination findings at hearing could tend to chill the

examination process. Examiners might be reluctant to examine areas at

issue in the hearing out of concern that their work might raise issues

about whether facts introduced at hearing were discovered after service

of the notice of charges. The result could be that OFHEO would be

hindered in its ability to examine those areas that were experiencing

the worst problems at the Enterprise.

Finally, a rule such as Freddie Mac suggests would require

discovery and collateral hearings to determine the source of much of

OFHEO's evidence. In OFHEO's view, such collateral proceedings would be

inappropriate, because the proper issue is whether parties have had

sufficient time to consider new evidence, not whether OFHEO obtained it

in an examination after a notice of charges was filed. Further, the

appropriate remedy in the event that there has been insufficient time

is to extend the hearing date, not to exclude the evidence.

[[Page 72505]]

Section 1780.20 Commencement of Proceeding and Contents of Notice of

Charges

Fannie Mae and Freddie Mac each recommended that OFHEO modify

Sec. 1780.20(b) to delete the proposed language requiring the notice of

charges to state ``the matters of fact or law showing that OFHEO is

entitled to relief'' and replace it with a requirement that the notice

of charges include ``a statement of the facts constituting the alleged

conduct or violation.'' Fannie Mae stated that the recommended

language, which is drawn directly from the 1992 Act, 12 U.S.C. 4631(c),

would require greater specificity in the initial notice, ensure more

fairness, and better enable the respondent to answer the charges.

OFHEO decided not to modify the language of Sec. 1780.20(b). This

NPR language is virtually identical to the Uniform Rules of the Federal

bank and thrift regulators.\12\ The governing statute for those

regulatory agencies, 12 U.S.C. 1818(b)(1), uses language identical in

relevant part to that of the 1992 Act. OFHEO intends its procedures in

regard to notices of charges to be the same as those of the Federal

bank and thrift regulators and, accordingly, is utilizing the same

language to describe the requirements for those notices.

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\12\ See 12 CFR 19.18(b)(2).

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Further, OFHEO does not understand the language of Sec. 1780.20(b)

to be narrower than the statutory language. The regulatory language

merely clarifies a level of specificity that is adequate to meet the

statutory requirement. The notice of charges is not intended to provide

a full and complete factual explication of the case against a

respondent. Respondents may use discovery to obtain additional details.

The notice of charges is intended simply to place respondents on notice

of the nature of the charges against them, with sufficient specificity

to allow them to prepare an answer and frame discovery requests. More

complex and technical pleading requirements would, in OFHEO's view, add

unnecessary and inefficient burden to the hearing process.

Fannie Mae recommended that Sec. 1780.20(d) be amended to include

language from section 1373(a)(2) of the 1992 Act (12 U.S.C. 4633(a)(2))

that requires hearings on cease and desist orders to be fixed for a

date not earlier than 30 days nor later than 60 days after service of

notice of charges. OFHEO disagrees with this recommendation. Like the

Uniform Rules, OFHEO's rule covers proceedings that arise under various

statutory provisions. It is not the purpose of this rule to catalogue

the requirements of all these statutes. It would also be inappropriate,

and potentially misleading, to include the requirements of only one.The

language of Sec. 1780.20(d) is virtually identical to that of the

Uniform Rules. That language does not negate section 1373(a)(2) of the

1992 Act any more than the Uniform Rules negate identical requirements

in 12 U.S.C. 1818(b)(1), which govern cease and desist proceedings

involving banks and thrifts.

Section 1780.22 Amended Pleadings

Fannie Mae recommended that certain language from the Uniform Rules

be added to the second sentence in Sec. 1780.22(b). However, OFHEO

modified the language of the Uniform Rules \13\ by splitting one long

sentence into two sentences. No language from the Uniform Rules has

been dropped in this modification. OFHEO did not intend to change the

meaning of the Uniform Rules, but to clarify that the presiding officer

will admit evidence freely if it will assist in the adjudication of the

merits and will not prejudice an objecting party's action or defense on

the merits.

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\13\ See 12 CFR 19.20(b).

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Accordingly, OFHEO found it unnecessary to change the language in

the proposed rule.

Section 1780.26 Discovery

Both Enterprises recommended that OFHEO modify the rule to provide

for interrogatories and discovery depositions, in addition to document

discovery. Freddie Mac pointed out that there is a split among the

regulations of the Federal financial institution regulatory agencies on

the availability of these discovery tools. Fannie Mae believes that

discovery depositions of experts and factual witnesses would promote

efficiency in any hearing, improve fact finding and lead to earlier

resolution of complex matters.

OFHEO recognizes that some regulatory agencies allow for discovery

depositions and interrogatories and some do not. The experiences of the

Office of the Comptroller of the Currency (OCC), the Office of Thrift

Supervision (OTS) and the Board of Governors of the Federal Reserve

System (Board of Governors) led those agencies to find that discovery

depositions served a useful purpose by promoting fact finding and

encouraging settlements. However, even at those agencies, discovery

depositions are limited to witnesses that have factual, direct and

personal knowledge of matters at issue and expert witnesses. The

Federal Deposit Insurance Corporation (FDIC) and the National Credit

Union Administration (NCUA) determined that the interests of

respondents in further pretrial disclosure were satisfied by the

availability of extensive document discovery that complements the

document intensive nature of those agencies' proceedings.\14\

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\14\ See 56 FR 37969, Aug. 9, 1991.

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OFHEO considered carefully the scope of discovery that would be

permitted under its regulations. OFHEO has determined that broad

document discovery should be permitted, but has recognized that there

is no constitutional right to prehearing discovery, including

deposition discovery, in Federal administrative proceedings.\15\

Further, the APA contains no provisions for prehearing discovery, and

the discovery provisions of the Federal Rules of Civil Procedure are

inapplicable to administrative proceedings.\16\ Instead, each agency

determines the extent of discovery to which a party in an

administrative hearing is entitled.\17\

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\15\ Sims v. National Transportation Safety Board, 662 F.2d 668,

671 (10th Cir. 1981); P.S.C. Resources, Inc. v. N.L.R.B., 576 F.2d

380, 386 (1st Cir. 1978); Silverman v. Commodity Futures Trading

Comm., 549 F.2d 28, 33 (7th Cir. 1977).

\16\ Kenwich Petrochemicals, Inc. v. N.L.R.B., 893 F.2d 1468,

1484 (3d Cir. 1990); N.L.R.B. v. Valley Mold Co., Inc., 503 F.2d

693, 695 (6th Cir. 1976); Frillette v. Kimberlin, 508 F.2d 205 (3d

Cir. 1974) cert. denied, 421 U.S. 980 (1975).

\17\ McClelland v. Andrus, 606 F.2d 1278, 1285 (D.C. Cir. 1979).

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OFHEO's regulations strike a balance between the due process

interest of respondents in obtaining pretrial disclosure, including

discovery depositions, and OFHEO's need for swift adjudication while

preserving its limited resources. Further, OFHEO believes that, like

the FDIC and the NCUA, its enforcement actions generally would be

document-intensive and that respondents could, therefore, obtain

sufficient discovery through document requests.

Section 1780.28 Document Subpoenas to Nonparties

Fannie Mae commented that Sec. 1780.28(a)(3) gives too much

discretion to the presiding officer to refuse to issue or to modify a

document subpoena. That provision governs applications for subpoenas

that do not set forth a valid basis for the issuance of a subpoena or

that request subpoenas with terms that are unreasonable, oppressive,

excessive in scope, or unduly burdensome. If presented with such an

application, the presiding

[[Page 72506]]

officer may refuse to issue the subpoena or may issue it in a modified

form upon such conditions ``as may be determined by the presiding

officer.'' Fannie Mae preferred the language of the Uniform Rules,

which is virtually identical except that, in lieu of the quoted

language, they state ``as may be consistent with the Uniform Rules.''

In a subsequent telephone conversation initiated by OFHEO to seek

clarification of this comment, Fannie Mae explained that it hoped that

OFHEO rules could go farther than the Uniform Rules and provide more

specific standards governing the modification of or refusal to issue

subpoenas.

OFHEO declines to modify the language. Although OFHEO does not

intend any meaning different from the Uniform Rules, OFHEO does not

find a general reference to the practice and procedure rules to be

helpful. Any ruling by the presiding officer should be consistent with

the practice and procedure rules. The wording chosen by OFHEO clarifies

that the presiding officer has discretion under the rule to make

modifications to a subpoena and to place conditions upon its issuance.

The language in the rule does not grant unlimited discretion to the

presiding officer, but conditions action upon a determination that no

valid basis for the subpoena has been set forth or that the terms of

the subpoena are unreasonable, oppressive, excessive in scope or unduly

burdensome. To OFHEO's knowledge this language has not led to

unreasonable suppression of discovery requests in hearings conducted by

other Federal financial institution regulatory agencies. For these

reasons, OFHEO sees no need to add additional conditions or

requirements to guide the rulings of presiding officers.

Section 1780.30 Interlocutory Review

Fannie Mae commented that the sentence in Sec. 1780.30(c) that

expressly allows the presiding officer to indicate an opinion about the

appropriateness of interlocutory review is highly prejudicial. Fannie

Mae stated that it is equivalent to allowing a trial court to express

an opinion to an appellate court on the arguments of a party that

brings an interlocutory appeal during a trial. Fannie Mae asserted that

the Federal financial institution regulatory agencies and HUD do not

allow presiding officers to comment upon the appropriateness of

interlocutory review.

OFHEO finds nothing prejudicial about allowing the presiding

officer to comment upon whether a motion for interlocutory appeal meets

the standards for such review. Except in a very narrow class of

interlocutory appeals,\18\ interlocutory appeals are available in the

Federal courts (and most State courts): (1) only at the discretion of

the appellate court and (2) only if the trial judge is of the opinion

that such an appeal is appropriate \19\ and so certifies in an

order.\20\ The purpose of this requirement is to prevent piecemeal

review of actions. OFHEO's rules do not go this far, but merely allow

the presiding officer to opine as to whether an interlocutory appeal is

appropriate. Unlike in the Federal courts, parties are free to request

interlocutory review even if the presiding officer believes the review

would not be appropriate.

---------------------------------------------------------------------------

\18\ 28 U.S.C. 1292(a).

\19\ 28 U.S.C. 1292(b).

\20\ Fed. R. Civ. P. 5(a).

---------------------------------------------------------------------------

OFHEO disagrees with Fannie Mae's view that the Uniform Rules

prohibit an administrative law judge from opining upon the

appropriateness of a motion for interlocutory review. Nothing in those

rules can be read to prohibit such an opinion. As in OFHEO's rules,

under the Uniform Rules, parties file their motions and responses for

interlocutory review with the ALJ, who ``refers'' them to the agency

head. The ALJ may use this referral as an opportunity to state views

upon whether particular issues merit that review.

It is important to distinguish between the presiding officer's

opining on the appealability of a matter and opining on its merits.

Parties seeking interlocutory review are appealing from a matter on

which the presiding officer has ruled and, presumably, placed an

opinion on the record. Section 1780.30(c) provides the Director

discretion to consider the matter prior to the review of the entire

hearing if (1) the ruling involves a controlling question of law or

policy as to which substantial grounds exist for a difference of

opinion, (2) immediate review of the ruling may materially advance the

ultimate termination of the proceeding, (3) subsequent modification of

the ruling at the conclusion of the proceeding would be an inadequate

remedy, or (4) subsequent modification of the ruling would cause

unusual delay or expense. The presiding official is in an excellent

position to advise the Director on whether these grounds for

interlocutory review are met and it is no more prejudicial to allow him

to express an opinion than for judges in the courts to do so. The fact

that a presiding officer has decided an issue against a particular

party does not mean that the presiding officer will feel that the issue

does not warrant interlocutory review. Where a novel legal issue is

involved or a final decision on the matter could clearly expedite the

resolution of the entire case, the presiding officer could have a

strong interest in supporting interlocutory review.

Fannie Mae also requested that the text of Sec. 1780.30(c) be

clarified to indicate that a party opposing a motion for interlocutory

review may file a response to such a motion. In OFHEO's view, such

clarification is unnecessary, because Sec. 1780.25(d), which governs

motions generally, applies. Section 1780.25(d) provides for responses

to all motions, except as otherwise provided. Section 1780.30 does not

contain an exception to Sec. 1780.25(d).

Section 1780.50 Conduct of Hearings

Freddie Mac commented that OFHEO should include a reference to

either the 1992 Act or, more generally, to applicable law in the rules

for conduct of hearings in Sec. 1780.50. Freddie Mac observed that laws

other than the APA may govern the conduct of hearings under the rules.

OFHEO concurs with this comment and has therefore added a reference

to ``other applicable law'' at Sec. 1780.50(a).

Subpart D--General Comments

Both Enterprises provided detailed comments regarding subpart D--

Rules of Practice Before the Office of Federal Housing Enterprise

Oversight. This subpart contains rules governing practice by parties or

their representatives before OFHEO. These rules include sanctions that

may be imposed in the course of an adjudicatory proceeding and censure,

suspension, and disbarment proceedings that may be brought against

individual practitioners.

Fannie Mae recognized and supported OFHEO's need to conduct orderly

hearings on the record. However, Fannie Mae felt that most of the

provisions of subpart D are outside the scope of OFHEO's authority to

conduct orderly hearings on the record. In addition, Fannie Mae

commented that many provisions were vague and confusing and that OFHEO

had not provided any ``legal explanation'' for this subpart. For these

reasons, Fannie Mae believes that subpart D ``is fraught with potential

for abuse and misunderstanding.'' Fannie Mae requested that OFHEO

clarify the scope of the subpart's applicability, provide specific

definitions for certain unspecified terms in the subpart and provide an

analysis of the statutory justification for the provisions in the

subpart, in particular those that do not relate to enforcement

proceedings under the 1992 Act. Fannie Mae believed that ``virtually

any conduct'' could be characterized by a presiding officer as

[[Page 72507]]

``contemptuous'' and that a presiding officer could find any sanction

``appropriate'' under this regulation.

Freddie Mac stated that the presiding officer must be able to

maintain order to accomplish the purposes of an adjudicatory hearing

and related proceedings. Freddie Mac agreed with the subpart in the

sense that the existence of sanctions would be helpful to accomplishing

those purposes. However, Freddie Mac stated that the scope of the

subpart should be limited to adjudicatory hearings and related

proceedings and to conduct by the parties and their representatives in

those hearings. Freddie Mac also recommended that lack of competence be

eliminated as a ground for sanctions and that the definition of

``practice before OFHEO'' be deleted.

Fannie Mae's comment suggests that OFHEO may lack authority to

issue rules governing practice beyond those necessary to control the

conduct of adjudicatory proceedings. OFHEO disagrees. OFHEO has an

interest in ensuring that individuals that it permits to represent the

interests of others before it can do so ethically and competently. The

authority to do so is incident to the authority of any agency to

control its internal operations, to insure that issues that must be

resolved by the agency are presented competently, that facts and law

are represented accurately, and that persons purporting to represent

others have appropriate authority. Further, OFHEO has chosen to allow

persons to practice before it who are not attorneys or other licensed

professionals subject to professional codes of conduct. Particularly as

to such individuals, who could not be referred to a licensing authority

for sanctions, OFHEO needs a means to ensure that their conduct and

competence meets normal professional standards.

OFHEO does not share the view of the Enterprises that the rules of

practice are too vague and too broad. OFHEO based its rules of practice

on those of the other Federal financial institution regulatory

agencies. Sections 1780.72 and 1780.73, which govern appearance and

practice in adjudicatory proceedings and conflicts of interest, are

modeled upon the Uniform Rules. The Enterprises raised no objection to

these sections. However, the Uniform Rules do not address expressly the

subjects of sanctions ordered in the course of a hearing or of censure,

suspension and disbarment. Each of the Federal financial institution

regulatory agencies that is subject to the Uniform Rules found it

necessary to address these subjects in separate Local Rules. Most of

these rules are similar to Secs. 1780.74 and 1780.75 of OFHEO's rules

of practice.\21\ Likewise, the Local Rules of most of these regulators

define the term ``practice,'' which OFHEO defines at Sec. 1780.71.\22\

---------------------------------------------------------------------------

\21\ Rules of practice for these agencies are found at 12 CFR

19.190-19.201 (OCC); 12 CFR 263.90-263.99 (Board of Governors); 12

CRF 308.108-308.109 (FDIC); 12 CFR 513.1-513.7 (OTS); 12 CFR 747.302

(NCUA--limited to certain suspension and prohibition proceedings).

\22\ 12 CFR 19.191(a) (OCC); 12 CFR 263.92(b)(1) (Board of

Governors); 12 CFR 308.109(e) (FDIC); 12 CFR 513.2(e) (OTS). NCUA

does not define ``practice'' in its regulations.

---------------------------------------------------------------------------

Although it is difficult to draw bright lines to describe what

conduct is contemptuous and what level of competence is sufficient,

OFHEO believes that the rule provides sufficient guidance in these

areas. If it should be necessary to impose sanctions under subpart D,

OFHEO will look to case law and the practices of other Federal

agencies, as well as any of OFHEO's own precedents that may exist, in

determining the appropriateness of particular sanctions.

Section 1780.70 Scope

Freddie Mac recommended that OFHEO limit the scope of subpart D to

practice in adjudicatory proceedings. Fannie Mae likewise commented

that parts of subpart D are outside the scope of OFHEO's authority to

conduct orderly hearings on the record. Freddie Mac suggested deleting

the phrase ``any other matters connected with presentations to OFHEO

relating to a client's or other principal's rights, privileges, or

liabilities'' in describing the scope of the subpart. Freddie Mac also

commented that the rules lack a bright line to determine what matters

are covered by subpart D.

OFHEO disagrees that its rules of practice should be more limited.

The quoted language is typical of that used by other Federal financial

institution regulatory agencies to describe the scope of their practice

rules.\23\ OFHEO chose the language in recognition of the fact that

counsel and other professionals frequently represent clients before

regulatory agencies in numerous types of matters. These matters include

rulemakings, investigations, and review of executive compensation

matters. OFHEO has an interest in insuring that the individuals with

whom it deals on such matters, in addition to formal adjudications,

meet minimal professional standards of competency and conduct.

Moreover, the conduct of individuals in these other types of

proceedings is relevant to their fitness to practice before OFHEO in

formal adjudications. Accordingly, OFHEO has not changed the scope of

subpart D. Although a ``bright line'' test, such as limiting the scope

to adjudications, might be simpler to administer, it would be, in

OFHEO's view, too narrow and rigid. Therefore, OFHEO prefers to define

the scope more broadly, to encompass various types of matters and

various types of representation.

---------------------------------------------------------------------------

\23\ See 12 CFR 19.190 (OCC); 12 CFR 263.90, 253.92(b)(1) (Board

of Governors); 12 CFR 513.1 (OTS).

---------------------------------------------------------------------------

Section 1780.71 Definitions

Freddie Mac stated that ``the expansive definition of `practice

before OFHEO' contained in Subpart D * * * is unclear.'' This statement

was made in the context of Freddie Mac's broader comment that the scope

of subpart D is overbroad and unclear and that the NPR ``fails to

address the potential problems that this expanded scope is best suited

to address.'' Freddie Mac suggested that OFHEO may seek to test every

presenter for the presence of adequate qualifications or subject every

presenter to potential sanctions based upon his character. Freddie Mac

states that such a process ``would serve no useful purpose and could

tend to impair what has been an open cooperative working relationship

between Freddie Mac and OFHEO.''

OFHEO likewise seeks open, cooperative working relationships with

the Enterprises, but does not interpret subpart D in a way that would

impair such relationships. It is not OFHEO's intention to require

everyone who conducts a presentation to OFHEO personnel to demonstrate

adequate qualifications. Rather, OFHEO intends to apply its practice

regulations in a manner similar to the practices of other Federal

financial institution regulatory agencies. Accordingly, OFHEO has made

no changes to Sec. 1780.71.

Section 1780.74 Sanctions

Fannie Mae stated that the conduct and sanctions specified in

proposed Sec. 1780.75(g) appeared redundant to similar conduct and

sanctions in proposed Sec. 1780.74. The provisions are not intended to

be redundant. Proposed Sec. 1780.75(g) specified that representatives

or individuals representing themselves who engage in contemptuous

conduct could be summarily suspended from a proceeding or subjected to

any other appropriate sanction. By contrast, proposed Sec. 1780.74

provided for sanctions that would be imposed after a hearing. However,

OFHEO found that the two provisions were better placed in the same

section, because they dealt with sanctions imposed by a presiding

[[Page 72508]]

officer during the course of an adjudicatory proceeding. Therefore, in

response to the comment, OFHEO has clarified the purposes of the two

provisions by combining them, incorporating the language from

Sec. 1780.75(g) into Secs. 1780.74(a)(1) and 1780.74(d).

Fannie Mae recommended that the summary procedure be eliminated

altogether and Freddie Mac recommended that any summary sanction occur

only after a written finding by the presiding officer that the

particular sanction is necessary. OFHEO believes that the authority to

expel individuals summarily from a hearing is inherent in and necessary

to the role and duties of presiding officer. Contemptuous conduct may

undermine the ability of the presiding officer to conduct a hearing. To

be effective, a presiding officer must have the ability to sanction

immediately anyone who engages in such conduct. Section 1780.74(d),

therefore, makes explicit an authority that is implicit in any event.

Requiring prior written findings by a presiding officer is inconsistent

with this type of authority, because these sanctions ordinarily would

be imposed immediately upon the occurrence of the contemptuous conduct.

Moreover, written findings may be unnecessary because hearings

ordinarily would be transcribed.

Section 1780.75 Censure, Suspension, Disbarment and Reinstatement

Freddie Mac recommended that OFHEO eliminate character and

incompetence as grounds for censure, suspension or disbarment. Freddie

Mac commented further that OFHEO should limit the scope of Sec. 1780.75

to adjudicatory hearings and related proceedings and to conduct by the

parties and their representatives in those hearings. Freddie Mac

explained:

As drafted, Sec. 1780.75 of the Proposed Rules would provide for

censure, suspension or disbarment of an individual based on a wide

variety of failings or prior conduct without any showing that the

underlying failing or conduct had resulted in, or would be likely to

result in, any adverse impact to an OFHEO adjudicatory hearing or

related proceeding. As such, it goes well beyond the disciplinary

authority that is a necessary incident to the authority to conduct

adjudicatory hearings and related proceedings (unnecessary sanctions

are simply punishment), and the exercise of that authority would

likely create a substantial burden [on] the proceedings and OFHEO.

OFHEO disagrees with Freddie Mac that character and prior conduct

of an individual is not relevant to that person's fitness to practice.

OFHEO has a major interest in ensuring that individuals who represent

others before it are honest and competent and have proper authority.

Moreover, as explained above, ``practice'' before OFHEO encompasses

more than appearances in adjudicatory proceedings. OFHEO can see no

reason to limit sanctions to conduct that impacts a specific

adjudicatory proceeding, as suggested by Freddie Mac. OFHEO should not

be required to review the same issues each time an individual whose

conduct warrants a suspension or disbarment appears. For these reasons,

OFHEO has chosen the approach of most other Federal financial

institution regulatory agencies and adopted a procedure that allows

persons who appear before OFHEO to be censured, suspended or disbarred.

Freddie Mac agreed with OFHEO that individuals appearing in an

adjudicatory hearing or related proceedings should be competent.

However Freddie Mac recommended that OFHEO rely upon the qualifications

requirements in Sec. 1780.72 to ensure competency, rather than allowing

incompetent representatives to be sanctioned. OFHEO has not accepted

this recommendation, because that section provides no effective means

to regulate the competence of individuals who appear. Section 1780.72

is intended primarily to ensure that individuals purporting to

represent other persons before OFHEO have the requisite authority. It

includes no requirement that representatives be competent nor any means

to deal with representatives who are incompetent.

Freddie Mac also argues that sanctions such as censure, suspension

and disbarment ``could effectively impose punishment beyond that

authorized by Congress for [violations of an Enterprise charter, the

1992 Act or any other law or regulation governing Enterprise

operations].'' According to Freddie Mac, because Congress gave OFHEO

authority to bring civil money penalties only against directors and

executive officers, OFHEO lacks authority to levy sanctions upon other

individuals. Under this theory, preventing an individual from practice

before OFHEO amounts to ``severe substantive punishment'' that goes

beyond actions necessary to control a particular hearing.

OFHEO disagrees with this interpretation of the 1992 Act. Incident

to the authority to manage its operations, any Federal agency has the

inherent authority to regulate reasonably the authority, qualifications

and competence of individuals who represent other persons before the

agency. As to adjudicatory proceedings involving individuals

representing themselves, the authority to maintain order and integrity

in those proceedings is inherent in the agency and the presiding

officer. This authority necessarily includes the authority to levy

appropriate sanctions. There is no legal basis to assert that these

authorities may only be used on a case by case basis. If the evidence

is sufficient to convince the Director that an individual should be

suspended from practice for a period of time or disbarred permanently

from appearing before OFHEO, the Director has the same inherent

authority to prevent that individual from practicing before OFHEO on

future matters as to suspend the individual from a current proceeding.

III. Synopsis of the Final Rule

The 1992 Act \24\ requires OFHEO to conduct its hearings pertaining

to cease-and-desist orders and civil money penalties in accordance with

the APA.\25\ Thus, the rules of practice and procedure supplement the

APA provisions governing agency adjudications and include provisions

unique to OFHEO's mission. These rules apply not only to enforcement

hearings, but also to any other adjudication required by statute to be

determined by the Director on the record after opportunity for hearing.

---------------------------------------------------------------------------

\24\ 1992 Act, section 1373(a)(3) (42 U.S.C. 4633(a)(3)).

\25\ 5 U.S.C. 500-559.

---------------------------------------------------------------------------

The final rule includes provisions relating to prehearing

procedures and activities, the conduct of the hearing itself, and the

qualifications and disciplinary rules for practice before OFHEO. The

rule establishes that hearings are open to the public unless the

Director determines that a public hearing would be contrary to the

public interest. The disciplinary rules of practice in subpart D apply

not only to adjudicatory hearings under the APA, but also to all

matters that involve representation of others before OFHEO. The rules

also define important terms and describe the authority of the Director

and the presiding officer.

Under subparts A, B, and C of this part, the Director commences the

hearing process by issuing and serving a notice of charges on a

respondent. A presiding officer, appointed by the Director, presides

over the course of the hearing from the time of the appointment until

the presiding officer files a recommended decision and order, along

with the hearing record, with the Director for a final decision. During

the course of the hearing, the

[[Page 72509]]

presiding officer controls virtually all aspects of the proceeding. The

presiding officer: determines the hearing schedule; presides over any

prehearing conferences; rules on motions, discovery, and evidentiary

issues; and ensures that the proceeding is fair, equitable, and

impartial. The presiding officer does not, however, have the authority

to make a ruling that disposes of the proceeding. Only the Director has

the authority to dismiss the proceeding or to make a final

determination of the merits of the proceeding.

Under this rule, the parties to the proceeding have the right to

present evidence and witnesses at the hearing and to examine and cross-

examine the witnesses. At the completion of the hearing, the parties

may submit proposed findings of fact and conclusions of law and a

proposed order. The presiding officer then submits the complete record

to the Director for consideration and action. The record includes the

presiding officer's recommended decision, recommended findings of fact

and conclusions of law, and proposed order. The record also includes

all prehearing and hearing transcripts, exhibits, rulings, motions,

briefs and memoranda, and all supporting papers filed in connection

with the hearing. The Director shall issue a final ruling within 90

days of the date the Director serves notice on the parties that the

record is complete and the case has been submitted for final decision.

Subpart D of this rule contains rules governing practice by parties

or their representatives before OFHEO. This subpart addresses the

imposition of sanctions by the presiding officer or the Director

against parties or their representatives in an adjudicatory proceeding

under this part. This subpart also covers other disciplinary

sanctions--censure, suspension or disbarment--against individuals who

appear before OFHEO in a representational capacity either in an

adjudicatory proceeding under part 1780 or in any other matters

connected with presentations to OFHEO relating to a client's or other

principal's rights, privileges, or liabilities. This representation

includes, but is not limited to, the practice of attorneys and

accountants. Employees of OFHEO are not subject to disciplinary

proceedings under this subpart.

The final rule incorporates certain changes from the proposed

regulation. Section 1780.1 has been modified to include, among the

examples of proceedings covered by the rule, civil money penalty

assessment proceedings under section 102 of the Flood Disaster

Protection Act of 1973. The definition of ``presiding officer'' at

Sec. 1780.3(h) has been clarified in response to a comment discussed

above. Section 1780.5 has been modified to list among the express

authorities of the presiding officer, the authority to issue protective

orders and regulate public and media access to hearings. Section

1780.10(f) has been modified to clarify the purpose of a proof of

service declaration or affidavit. Section 1780.50 was modified to

clarify that hearings would be conducted not only in accordance with

the APA, but also any other applicable law. Section 1780.74 was

modified to incorporate the provisions of Sec. 1780.75(g) and to

clarify that the presiding officer may decide what notice and responses

are appropriate where sanctions are at issue in an adjudicatory

proceeding. Slight modifications were made to the language of

Sec. 1780.75(a) to clarify which individuals may be subject to

sanctions under the section. Section 1780.75(g) was deleted and its

provisions incorporated into Sec. 1780.74. In addition, the final rule

includes a number of minor corrections that create no substantive

change in the rule.

IV. Regulatory Impact

Executive Order 13132, Federalism

Executive Order 13132 requires that Executive departments and

agencies identify regulatory actions that have significant federalism

implications. ``Federalism implications'' is defined to specify

regulations or actions that have substantial, direct effects on the

States, on the relationship between the national Government and the

States, or on the distribution of power and responsibilities between

Federal and State Government. OFHEO has determined that this final rule

has no federalism implications that warrant the preparation of a

Federalism Assessment in accordance with Executive Order 13132.

Executive Order 12866, Regulatory Planning and Review

OFHEO has determined that this final rule is not a significant

regulatory action as such term is defined in Executive Order 12866, has

so indicated to the Office of Management and Budget (OMB) and was not

notified by OMB that the rule must be reviewed by OMB.

Executive Order 12988, Civil Justice Reform

Executive Order 12988 sets forth guidelines to promote the just and

efficient resolution of civil claims and to reduce the risk of

litigation to the Federal Government. This final rule meets the

applicable standards of sections 3(a) and 3(b) of Executive Order

12988.

Unfunded Mandates Reform Act of 1995

This rule does not include a Federal mandate that may result in the

expenditure by State, local and tribal governments, in the aggregate,

or by the private sector, of $100,000,000 or more (adjusted annually

for inflation) in any one year. Consequently, the final rule does not

warrant the preparation of an assessment statement in accordance with

the Unfunded Mandates Reform Act of 1995.

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 must include a regulatory flexibility analysis

describing the rule's impact on small entities. Such an analysis need

not be undertaken if the agency head certifies that the rule will not

have a significant economic impact on a substantial number of small

entities. 5 U.S.C. 605(b).

OFHEO has considered the impacts of the rule under the Regulatory

Flexibility Act. The rule does not have a significant economic impact

on a substantial number of small entities, because it is applicable

only to the Enterprises, which are not small entities. Therefore,

OFHEO's General Counsel, acting under delegated authority, has

certified that the rule would not have a significant economic impact on

a substantial number of small entities.

Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) requires

that regulations involving the collection of information receive

clearance from OMB. This rule contains no such collection of

information requiring OMB approval under the Paperwork Reduction Act.

Consequently, no information has been submitted to OMB for review.

List of Subjects in 12 CFR Part 1780

Administrative practice and procedure, Penalties.

Accordingly, for the reasons set forth in the preamble, OFHEO is

amending 12 CFR part 1780 as follows:

PART 1780--RULES OF PRACTICE AND PROCEDURE

1. Revise the heading for part 1780 to read as set forth above.

2. Revise the authority citation for part 1780 to read as follows:

[[Page 72510]]

Authority: 12 U.S.C. 4513, 4631-4641.

Subpart E also issued under 28 U.S.C. 2461 note.

Subpart E--[Amended]

3. Redesignate Secs. 1780.70 and 1780.71 as Secs. 1780.80 and

1780.81, respectively.

4. Add subparts A through D to part 1780 to read as follows:

Subpart A--General Rules

Sec.

1780.1 Scope.

1780.2 Rules of construction.

1780.3 Definitions.

1780.4 Authority of the Director.

1780.5 Authority of the presiding officer.

1780.6 Public hearings.

1780.7 Good faith certification.

1780.8 Ex parte communications.

1780.9 Filing of papers.

1780.10 Service of papers.

1780.11 Computing time.

1780.12 Change of time limits.

1780.13 Witness fees and expenses.

1780.14 Opportunity for informal settlement.

1780.15 OFHEO's right to conduct examination.

1780.16 Collateral attacks on adjudicatory proceeding.

Subpart B--Prehearing Proceedings

1780.20 Commencement of proceeding and contents of notice of

charges.

1780.21 Answer.

1780.22 Amended pleadings.

1780.23 Failure to appear.

1780.24 Consolidation and severance of actions.

1780.25 Motions.

1780.26 Discovery.

1780.27 Request for document discovery from parties.

1780.28 Document subpoenas to nonparties.

1780.29 Deposition of witness unavailable for hearing.

1780.30 Interlocutory review.

1780.31 Summary disposition.

1780.32 Partial summary disposition.

1780.33 Scheduling and prehearing conferences.

1780.34 Prehearing submissions.

1780.35 Hearing subpoenas.

Subpart C--Hearing and Posthearing Proceedings

1780.50 Conduct of hearings.

1780.51 Evidence.

1780.52 Post hearing filings.

1780.53 Recommended decision and filing of record.

1780.54 Exceptions to recommended decision.

1780.55 Review by Director.

1780.56 Exhaustion of administrative remedies.

1780.57 Stays pending judicial review.

Subpart D--Rules of Practice Before the Office of Federal Housing

Enterprise Oversight

1780.70 Scope.

1780.71 Definitions.

1780.72 Appearance and practice in adjudicatory proceedings.

1780.73 Conflicts of interest.

1780.74 Sanctions.

1780.75 Censure, suspension, disbarment and reinstatement.

Subpart A--General Rules

Sec. 1780.1 Scope.

This subpart prescribes rules of practice and procedure applicable

to the following adjudicatory proceedings:

(a) Cease and desist proceedings under sections 1371 and 1373,

title XIII of the Housing and Community Development Act of 1992, Pub.

L. No. 102-550, known as the Federal Housing Enterprises Financial

Safety and Soundness Act of 1992 (1992 Act) (12 U.S.C. 4631, 4633).

(b) Civil money penalty assessment proceedings against the Federal

National Mortgage Association, the Federal Home Loan Mortgage

Corporation (collectively, the Enterprises), or any executive officer

or director of any Enterprise under sections 1373 and 1376 of the 1992

Act (12 U.S.C. 4633, 4636).

(c) Civil money penalty assessment proceedings under section 102 of

the Flood Disaster Protection Act of 1973, as amended, 42 U.S.C. 4012a.

(d) All other adjudications required by statute to be determined on

the record after opportunity for hearing, except to the extent

otherwise provided in the regulations specifically governing such an

adjudication.

Sec. 1780.2 Rules of construction.

For purposes of this part--

(a) Any term in the singular includes the plural and the plural

includes the singular, if such use would be appropriate;

(b) Any use of a masculine, feminine, or neuter gender encompasses

all three, if such use would be appropriate; and

(c) Unless the context requires otherwise, a party's representative

of record, if any, may, on behalf of that party, take any action

required to be taken by the party.

Sec. 1780.3 Definitions.

For purposes of this part, unless explicitly stated to the

contrary--

(a) Adjudicatory proceeding means a proceeding conducted pursuant

to these rules and leading to the formulation of a final order other

than a regulation;

(b) Decisional employee means any member of the Director's or the

presiding officer's staff who has not engaged in an investigative or

prosecutorial role in a proceeding and who may assist the Director or

the presiding officer, respectively, in preparing orders, recommended

decisions, decisions and other documents under this subpart.

(c) Director means the Director of OFHEO.

(d) Enterprise means the Federal National Mortgage Association and

any affiliate thereof and the Federal Home Loan Mortgage Corporation

and any affiliate thereof.

(e) OFHEO means the Office of Federal Housing Enterprise Oversight

of the Department of Housing and Urban Development.

(f) Party means OFHEO and any person named as a party in any

notice.

(g) Person means an individual, sole proprietor, partnership,

corporation, unincorporated association, trust, joint venture, pool,

syndicate, agency, or other entity or organization.

(h) Presiding officer means an administrative law judge or any

other person appointed by the Director under applicable law to conduct

a hearing.

(i) Representative of record means an individual who is authorized

to represent a person or is representing himself and who has filed a

notice of appearance in accordance with Sec. 1780.72.

(j) Respondent means any party other than OFHEO.

(k) Violation includes any action (alone or with another or others)

for or toward causing, bringing about, participating in, counseling, or

aiding or abetting a violation.

(l) The 1992 Act is title XIII of the Housing and Community

Development Act of 1992, Pub. L. No. 102-550, known as the Federal

Housing Enterprises Financial Safety and Soundness Act of 1992 (1992

Act) (12 U.S.C. 4501-4641).

Sec. 1780.4 Authority of the Director.

The Director may, at any time during the pendency of a proceeding,

perform, direct the performance of, or waive performance of any act

that could be done or ordered by the presiding officer.

Sec. 1780.5 Authority of the presiding officer.

(a) General rule. All proceedings governed by this subpart shall be

conducted in accordance with the provisions of 5 U.S.C. chapter 5. The

presiding officer shall have complete charge of the hearing, conduct a

fair and impartial hearing, avoid unnecessary delay and assure that a

record of the proceeding is made.

(b) Powers. The presiding officer shall have all powers necessary

to conduct the proceeding in accordance with paragraph (a) of this

section and 5 U.S.C. 556(c). The presiding officer is authorized to--

[[Page 72511]]

(1) Set and change the date, time and place of the hearing upon

reasonable notice to the parties;

(2) Continue or recess the hearing in whole or in part for a

reasonable period of time;

(3) Hold conferences to identify or simplify the issues, or to

consider other matters that may aid in the expeditious disposition of

the proceeding;

(4) Administer oaths and affirmations;

(5) Issue subpoenas, subpoenas duces tecum, and protective orders,

as authorized by this part, and to revoke, quash, or modify such

subpoenas;

(6) Take and preserve testimony under oath;

(7) Rule on motions and other procedural matters appropriate in an

adjudicatory proceeding, except that only the Director shall have the

power to grant any motion to dismiss the proceeding or make a final

determination of the merits of the proceeding;

(8) Regulate the scope and timing of discovery;

(9) Regulate the course of the hearing and the conduct of

representatives and parties;

(10) Examine witnesses;

(11) Receive, exclude, limit, or otherwise rule on evidence;

(12) Upon motion of a party, take official notice of facts;

(13) Recuse himself upon motion made by a party or on his own

motion;

(14) Prepare and present to the Director a recommended decision as

provided in this part;

(15) To establish time, place and manner limitations on the

attendance of the public and the media for any public hearing; and

(16) Do all other things necessary and appropriate to discharge the

duties of a presiding officer.

Sec. 1780.6 Public hearings.

(a) General rule. All hearings shall be open to the public, unless

the Director, in his discretion, determines that holding an open

hearing would be contrary to the public interest. The Director may make

such determination sua sponte at any time by written notice to all

parties.

(b) Motion for closed hearing. Within 20 days of service of the

notice of charges, any party may file with the presiding officer a

motion for a private hearing and any party may file a pleading in reply

to the motion. The presiding officer shall forward the motion and any

reply, together with a recommended decision on the motion, to the

Director, who shall make a final determination. Such motions and

replies are governed by Sec. 1780.25.

(c) Filing documents under seal. OFHEO's counsel of record, in his

discretion, may file any document or part of a document under seal if

such counsel makes a written determination that disclosure of the

document would be contrary to the public interest. The presiding

officer shall take all appropriate steps to preserve the

confidentiality of such documents or parts thereof, including closing

portions of the hearing to the public.

Sec. 1780.7 Good faith certification.

(a) General requirement. Every filing or submission of record

following the issuance of a notice by the Director shall be signed by

at least one representative of record in his individual name and shall

state that representative's address and telephone number and the names,

addresses and telephone numbers of all other representatives of record

for the person making the filing or submission.

(b) Effect of signature. (1) By signing a document, the

representative of record or party certifies that--

(i) The representative of record or party has read the filing or

submission of record;

(ii) To the best of his knowledge, information and belief formed

after reasonable inquiry, the filing or submission of record is well-

grounded in fact and is warranted by existing law or a good faith,

nonfrivolous argument for the extension, modification, or reversal of

existing law; and

(iii) The filing or submission of record is not made for any

improper purpose, such as to harass or to cause unnecessary delay or

needless increase in the cost of litigation.

(2) If a filing or submission of record is not signed, the

presiding officer shall strike the filing or submission of record,

unless it is signed promptly after the omission is called to the

attention of the pleader or movant.

(c) Effect of making oral motion or argument. The act of making any

oral motion or oral argument by any representative or party shall

constitute a certification that to the best of his knowledge,

information, and belief, formed after reasonable inquiry, his

statements are well-grounded in fact and are warranted by existing law

or a good faith, nonfrivolous argument for the extension, modification,

or reversal of existing law and are not made for any improper purpose,

such as to harass or to cause unnecessary delay or needless increase in

the cost of litigation.

Sec. 1780.8 Ex parte communications.

(a) Definition. (1) Ex parte communication means any material oral

or written communication relevant to the merits of an adjudicatory

proceeding that was neither on the record nor on reasonable prior

notice to all parties that takes place between--

(i) An interested person outside OFHEO (including the person's

representative); and

(ii) The presiding officer handling that proceeding, the Director,

a decisional employee assigned to that proceeding, or any other person

who is or may reasonably be expected to be involved in the decisional

process.

(2) A communication that does not concern the merits of an

adjudicatory proceeding, such as a request for status of the

proceeding, does not constitute an ex parte communication.

(b) Prohibition of ex parte communications. From the time the

notice commencing the proceeding is issued by the Director until the

date that the Director issues his final decision pursuant to

Sec. 1780.55, no person referred to in paragraph (a)(1)(i) of this

section shall knowingly make or cause to be made an ex parte

communication. The Director, presiding officer, or a decisional

employee shall not knowingly make or cause to be made an ex parte

communication.

(c) Procedure upon occurrence of ex parte communication. If an ex

parte communication is received by any person identified in paragraph

(a) of this section, that person shall cause all such written

communications (or, if the communication is oral, a memorandum stating

the substance of the communication) to be placed on the record of the

proceeding and served on all parties. All parties to the proceeding

shall have an opportunity, within ten days of receipt of service of the

ex parte communication, to file responses thereto and to recommend any

sanctions, in accordance with paragraph (d) of this section, that they

believe to be appropriate under the circumstances.

(d) Sanctions. Any party or representative for a party who makes an

ex parte communication, or who encourages or solicits another to make

any such communication, may be subject to any appropriate sanction or

sanctions imposed by the Director or the presiding officer, including,

but not limited to, exclusion from the proceedings and an adverse

ruling on the issue that is the subject of the prohibited

communication.

(e) Consultations by presiding officer. Except to the extent

required for the disposition of ex parte matters as authorized by law,

the presiding officer may not consult a person or party on any matter

relevant to the merits of the adjudication, unless on notice and

opportunity for all parties to participate.

[[Page 72512]]

(f) Separation of functions. An employee or agent engaged in the

performance of investigative or prosecuting functions for OFHEO in a

case may not, in that or a factually related case, participate or

advise in the decision, recommended decision, or Director review under

Sec. 1780.55 of the recommended decision, except as witness or counsel

in public proceedings.

Sec. 1780.9 Filing of papers.

(a) Filing. Any papers required to be filed shall be addressed to

the presiding officer and filed with OFHEO, 1700 G Street, NW., Fourth

Floor, Washington, DC 20552.

(b) Manner of filing. Unless otherwise specified by the Director or

the presiding officer, filing shall be accomplished by:

(1) Personal service;

(2) Delivery to the U.S. Postal Service or to a reliable commercial

delivery service for same day or overnight delivery;

(3) Mailing by first class, registered, or certified mail; or

(4) Transmission by electronic media, only if expressly authorized

by and upon any conditions specified by the Director or the presiding

officer. All papers filed by electronic media shall also concurrently

be filed in accordance with paragraph (c) of this section.

(c) Formal requirements as to papers filed. (1) Form. All papers

must set forth the name, address and telephone number of the

representative or party making the filing and must be accompanied by a

certification setting forth when and how service has been made on all

other parties. All papers filed must be double-spaced and printed or

typewritten on 8\1/2\ x 11-inch paper and must be clear and legible.

(2) Signature. All papers must be dated and signed as provided in

Sec. 1780.7.

(3) Caption. All papers filed must include at the head thereof, or

on a title page, the name of OFHEO and of the filing party, the title

and docket number of the proceeding and the subject of the particular

paper.

(4) Number of copies. Unless otherwise specified by the Director or

the presiding officer, an original and one copy of all documents and

papers shall be filed, except that only one copy of transcripts of

testimony and exhibits shall be filed.

Sec. 1780.10 Service of papers.

(a) By the parties. Except as otherwise provided, a party filing

papers or serving a subpoena shall serve a copy upon the representative

of record for each party to the proceeding so represented and upon any

party not so represented.

(b) Method of service. Except as provided in paragraphs (c)(2) and

(d) of this section, a serving party shall use one or more of the

following methods of service:

(1) Personal service;

(2) Delivery to the U.S. Postal Service or to a reliable commercial

delivery service for same day or overnight delivery;

(3) Mailing by first class, registered, or certified mail; or

(4) Transmission by electronic media, only if the parties mutually

agree. Any papers served by electronic media shall also concurrently be

served in accordance with the requirements of Sec. 1780.9(c).

(c) By the Director or the presiding officer. (1) All papers

required to be served by the Director or the presiding officer upon a

party who has appeared in the proceeding in accordance with

Sec. 1780.72 shall be served by any means specified in paragraph (b) of

this section.

(2) If a notice of appearance has not been filed in the proceeding

for a party in accordance with Sec. 1780.72, the Director or the

presiding officer shall make service upon the party by any of the

following methods:

(i) By personal service;

(ii) If the person to be served is an individual, by delivery to a

person of suitable age and discretion at the physical location where

the individual resides or works;

(iii) If the person to be served is a corporation or other

association, by delivery to an officer, managing or general agent, or

to any other agent authorized by appointment or by law to receive

service and, if the agent is one authorized by statute to receive

service and the statute so requires, by also mailing a copy to the

party;

(iv) By registered or certified mail addressed to the person's last

known address; or

(v) By any other method reasonably calculated to give actual

notice.

(d) Subpoenas. Service of a subpoena may be made:

(1) By personal service;

(2) If the person to be served is an individual, by delivery to a

person of suitable age and discretion at the physical location where

the individual resides or works;

(3) If the person to be served is a corporation or other

association, by delivery to an officer, managing or general agent, or

to any other agent authorized by appointment or by law to receive

service and, if the agent is one authorized by statute to receive

service and the statute so requires, by also mailing a copy to the

party; or

(4) By registered or certified mail addressed to the person's last

known address; or

(5) By any other method reasonably calculated to give actual

notice.

(e) Area of service. Service in any State, commonwealth,

possession, territory of the United States or the District of Columbia

on any person doing business in any State, commonwealth, possession,

territory of the United States or the District of Columbia, or on any

person as otherwise permitted by law, is effective without regard to

the place where the hearing is held.

(f) Proof of service. Proof of service of papers filed by a party

shall be filed before action is taken thereon. The proof of service,

which shall serve as prima facie evidence of the fact and date of

service, shall show the date and manner of service and may be by

written acknowledgment of service, by declaration of the person making

service, or by certificate of a representative of record. However,

failure to file proof of service contemporaneously with the papers

shall not affect the validity of actual service. The presiding officer

may allow the proof to be amended or supplied, unless to do so would

result in material prejudice to a party.

Sec. 1780.11 Computing time.

(a) General rule. In computing any period of time prescribed or

allowed by this subpart, the date of the act or event that commences

the designated period of time is not included. The last day so computed

is included unless it is a Saturday, Sunday, or Federal holiday. When

the last day is a Saturday, Sunday or Federal holiday, the period shall

run until the end of the next day that is not a Saturday, Sunday, or

Federal holiday. Intermediate Saturdays, Sundays and Federal holidays

are included in the computation of time. However, when the time period

within which an act is to be performed is 10 days or less, not

including any additional time allowed for in paragraph (c) of this

section, intermediate Saturdays, Sundays and Federal holidays are not

included.

(b) When papers are deemed to be filed or served. (1) Filing and

service are deemed to be effective--

(i) In the case of personal service or same day reliable commercial

delivery service, upon actual service;

(ii) In the case of U.S. Postal Service or reliable commercial

overnight delivery service, or first class, registered, or certified

mail, upon

[[Page 72513]]

deposit in or delivery to an appropriate point of collection; or

(iii) In the case of transmission by electronic media, as specified

by the authority receiving the filing in the case of filing, and as

agreed among the parties in the case of service.

(2) The effective filing and service dates specified in paragraph

(b)(1) of this section may be modified by the Director or the presiding

officer in the case of filing or by agreement of the parties in the

case of service.

(c) Calculation of time for service and filing of responsive

papers. Whenever a time limit is measured by a prescribed period from

the service of any notice or paper, the applicable time limits shall be

calculated as follows:

(1) If service was made by first class, registered, or certified

mail, or by delivery to the U.S. Postal Service for longer than

overnight delivery service, add three calendar days to the prescribed

period for the responsive filing.

(2) If service was made by U.S. Postal Service or reliable

commercial overnight delivery service, add 1 calendar day to the

prescribed period for the responsive filing.

(3) If service was made by electronic media transmission, add one

calendar day to the prescribed period for the responsive filing, unless

otherwise determined by the Director or the presiding officer in the

case of filing, or by agreement among the parties in the case of

service.

Sec. 1780.12 Change of time limits.

Except as otherwise provided by law, the presiding officer may, for

good cause shown, extend the time limits prescribed above or prescribed

by any notice or order issued in the proceedings. After the referral of

the case to the Director pursuant to Sec. 1780.53, the Director may

grant extensions of the time limits for good cause shown. Extensions

may be granted on the motion of a party after notice and opportunity to

respond is afforded all nonmoving parties, or on the Director's or the

presiding officer's own motion.

Sec. 1780.13 Witness fees and expenses.

Witnesses (other than parties) subpoenaed for testimony or

depositions shall be paid the same fees for attendance and mileage as

are paid in the United States district courts in proceedings in which

the United States is a party, provided that, in the case of a discovery

subpoena addressed to a party, no witness fees or mileage shall be

paid. Fees for witnesses shall be tendered in advance by the party

requesting the subpoena, except that fees and mileage need not be

tendered in advance where OFHEO is the party requesting the subpoena.

OFHEO shall not be required to pay any fees to or expenses of any

witness not subpoenaed by OFHEO.

Sec. 1780.14 Opportunity for informal settlement.

Any respondent may, at any time in the proceeding, unilaterally

submit to OFHEO's counsel of record written offers or proposals for

settlement of a proceeding without prejudice to the rights of any of

the parties. No such offer or proposal shall be made to any OFHEO

representative other than OFHEO's counsel of record. Submission of a

written settlement offer does not provide a basis for adjourning or

otherwise delaying all or any portion of a proceeding under this part.

No settlement offer or proposal, or any subsequent negotiation or

resolution, is admissible as evidence in any proceeding.

Sec. 1780.15 OFHEO's right to conduct examination.

Nothing contained in this part limits in any manner the right of

OFHEO to conduct any examination, inspection, or visitation of any

Enterprise or affiliate, or the right of OFHEO to conduct or continue

any form of investigation authorized by law.

Sec. 1780.16 Collateral attacks on adjudicatory proceeding.

If an interlocutory appeal or collateral attack is brought in any

court concerning all or any part of an adjudicatory proceeding, the

challenged adjudicatory proceeding shall continue without regard to the

pendency of that court proceeding. No default or other failure to act

as directed in the adjudicatory proceeding within the times prescribed

in this subpart shall be excused based on the pendency before any court

of any interlocutory appeal or collateral attack.

Subpart B--Prehearing Proceedings

Sec. 1780.20 Commencement of proceeding and contents of notice of

charges.

Proceedings under this subpart are commenced by the issuance of a

notice of charges by the Director, which must be served upon the

respondent. Such notice shall state all of the following:

(a) The legal authority for the proceeding and for OFHEO's

jurisdiction over the proceeding;

(b) A statement of the matters of fact or law showing that OFHEO is

entitled to relief;

(c) A proposed order or prayer for an order granting the requested

relief;

(d) The time, place and nature of the hearing;

(e) The time within which to file an answer;

(f) The time within which to request a hearing; and

(g) The address for filing the answer and/or request for a hearing.

Sec. 1780.21 Answer.

(a) When. Unless otherwise specified by the Director in the notice,

respondent shall file an answer within 20 days of service of the

notice.

(b) Content of answer. An answer must respond specifically to each

paragraph or allegation of fact contained in the notice and must admit,

deny, or state that the party lacks sufficient information to admit or

deny each allegation of fact. A statement of lack of information has

the effect of a denial. Denials must fairly meet the substance of each

allegation of fact denied; general denials are not permitted. When a

respondent denies part of an allegation, that part must be denied and

the remainder specifically admitted. Any allegation of fact in the

notice that is not denied in the answer is deemed admitted for purposes

of the proceeding. A respondent is not required to respond to the

portion of a notice that constitutes the prayer for relief or proposed

order. The answer must set forth affirmative defenses, if any, asserted

by the respondent.

(c) Default. Failure of a respondent to file an answer required by

this section within the time provided constitutes a waiver of such

respondent's right to appear and contest the allegations in the notice.

If no timely answer is filed, OFHEO's counsel of record may file a

motion for entry of an order of default. Upon a finding that no good

cause has been shown for the failure to file a timely answer, the

presiding officer shall file with the Director a recommended decision

containing the findings and the relief sought in the notice. Any final

order issued by the Director based upon a respondent's failure to

answer is deemed to be an order issued upon consent.

Sec. 1780.22 Amended pleadings.

(a) Amendments. The notice or answer may be amended or supplemented

at any stage of the proceeding. The respondent must answer an amended

notice within the time remaining for the respondent's answer to the

original notice, or within ten days after service of the amended

notice, whichever period is longer,

[[Page 72514]]

unless the Director or presiding officer orders otherwise for good

cause shown.

(b) Amendments to conform to the evidence. When issues not raised

in the notice or answer are tried at the hearing by express or implied

consent of the parties, they will be treated in all respects as if they

had been raised in the notice or answer, and no formal amendments are

required. If evidence is objected to at the hearing on the ground that

it is not within the issues raised by the notice or answer, the

presiding officer may admit the evidence when admission is likely to

assist in adjudicating the merits of the action. The presiding officer

will do so freely when the determination of the merits of the action is

served thereby and the objecting party fails to satisfy the presiding

officer that the admission of such evidence would unfairly prejudice

that party's action or defense upon the merits. The presiding officer

may grant a continuance to enable the objecting party to meet such

evidence.

Sec. 1780.23 Failure to appear.

Failure of a respondent to appear in person at the hearing or by a

duly authorized representative constitutes a waiver of respondent's

right to a hearing and is deemed an admission of the facts as alleged

and consent to the relief sought in the notice. Without further

proceedings or notice to the respondent, the presiding officer shall

file with the Director a recommended decision containing the findings

and the relief sought in the notice.

Sec. 1780.24 Consolidation and severance of actions.

(a) Consolidation. On the motion of any party, or on the presiding

officer's own motion, the presiding officer may consolidate, for some

or all purposes, any two or more proceedings, if each such proceeding

involves or arises out of the same transaction, occurrence or series of

transactions or occurrences, or involves at least one common respondent

or a material common question of law or fact, unless such consolidation

would cause unreasonable delay or injustice. In the event of

consolidation under this section, appropriate adjustment to the

prehearing schedule must be made to avoid unnecessary expense,

inconvenience, or delay.

(b) Severance. The presiding officer may, upon the motion of any

party, sever the proceeding for separate resolution of the matter as to

any respondent only if the presiding officer finds that undue prejudice

or injustice to the moving party would result from not severing the

proceeding and such undue prejudice or injustice would outweigh the

interests of judicial economy and expedition in the complete and final

resolution of the proceeding.

Sec. 1780.25 Motions.

(a) In writing. (1) Except as otherwise provided herein, an

application or request for an order or ruling must be made by written

motion.

(2) All written motions must state with particularity the relief

sought and must be accompanied by a proposed order.

(3) No oral argument may be held on written motions except as

otherwise directed by the presiding officer. Written memoranda, briefs,

affidavits, or other relevant material or documents may be filed in

support of or in opposition to a motion.

(b) Oral motions. A motion may be made orally on the record unless

the presiding officer directs that such motion be reduced to writing.

(c) Filing of motions. Motions must be filed with the presiding

officer, except that following the filing of a recommended decision,

motions must be filed with the Director.

(d) Responses. (1) Except as otherwise provided herein, any party

may file a written response to a motion within ten days after service

of any written motion, or within such other period of time as may be

established by the presiding officer or the Director. The presiding

officer shall not rule on any oral or written motion before each party

has had an opportunity to file a response.

(2) The failure of a party to oppose a written motion or an oral

motion made on the record is deemed a consent by that party to the

entry of an order substantially in the form of the order accompanying

the motion.

(e) Dilatory motions. Frivolous, dilatory, or repetitive motions

are prohibited. The filing of such motions may form the basis for

sanctions.

(f) Dispositive motions. Dispositive motions are governed by

Secs. 1780.31 and 1780.32.

Sec. 1780.26 Discovery.

(a) Limits on discovery. Subject to the limitations set out in

paragraphs (b), (d), and (e) of this section, a party to a proceeding

under this subpart may obtain document discovery by serving a written

request to produce documents. For purposes of a request to produce

documents, the term ``documents'' may be defined to include drawings,

graphs, charts, photographs, recordings, data stored in electronic

form, and other data compilations from which information can be

obtained or translated, if necessary, by the parties through detection

devices into reasonably usable form, as well as written material of all

kinds.

(b) Relevance. A party may obtain document discovery regarding any

matter not privileged that has material relevance to the merits of the

pending action. Any request to produce documents that calls for

irrelevant material, that is unreasonable, oppressive, excessive in

scope, unduly burdensome, or repetitive of previous requests, or that

seeks to obtain privileged documents will be denied or modified. A

request is unreasonable, oppressive, excessive in scope, or unduly

burdensome if, among other things, it fails to include justifiable

limitations on the time period covered and the geographic locations to

be searched, the time provided to respond in the request is inadequate,

or the request calls for copies of documents to be delivered to the

requesting party and fails to include the requestor's written agreement

to pay in advance for the copying, in accordance with Sec. 1780.27.

(c) Forms of discovery. Discovery shall be limited to requests for

production of documents for inspection and copying. No other form of

discovery shall be allowed. Discovery by use of interrogatories is not

permitted. This paragraph shall not be interpreted to require the

creation of a document.

(d) Privileged matter. Privileged documents are not discoverable.

Privileges include the attorney-client privilege, work-product

privilege, any government's or government agency's deliberative process

privilege and any other privileges provided by the Constitution, any

applicable act of Congress, or the principles of common law.

(e) Time limits. All discovery, including all responses to

discovery requests, shall be completed at least 20 days prior to the

date scheduled for the commencement of the hearing. No exception to

this time limit shall be permitted, unless the presiding officer finds

on the record that good cause exists for waiving the requirements of

this paragraph.

Sec. 1780.27 Request for document discovery from parties.

(a) General rule. Any party may serve on any other party a request

to produce for inspection any discoverable documents that are in the

possession, custody, or control of the party upon whom the request is

served. Copies of the request shall be served on all other parties. The

request must identify the documents to be produced either by individual

item or by category and must

[[Page 72515]]

describe each item and category with reasonable particularity.

Documents must be produced as they are kept in the usual course of

business or they shall be labeled and organized to correspond with the

categories in the request.

(b) Production or copying. The request must specify a reasonable

time, place and manner for production and performing any related acts.

In lieu of inspecting the documents, the requesting party may specify

that all or some of the responsive documents be copied and the copies

delivered to the requesting party. If copying of fewer than 250 pages

is requested, the party to whom the request is addressed shall bear the

cost of copying and shipping charges. If a party requests more than 250

pages of copying, the requesting party shall pay for copying and

shipping charges. Copying charges are at the current rate per page

imposed by OFHEO at Sec. 1710.22(b)(2) of this chapter for requests for

documents filed under the Freedom of Information Act, 12 U.S.C. 552.

The party to whom the request is addressed may require payment in

advance before producing the documents.

(c) Obligation to update responses. A party who has responded to a

discovery request is not required to supplement the response, unless:

(1) The responding party learns that in some material respect the

information disclosed is incomplete or incorrect, and

(2) The additional or corrective information has not otherwise been

made known to the other parties during the discovery process or in

writing.

(d) Motions to strike or limit discovery requests. (1) Any party

that objects to a discovery request may, within ten days of being

served with such request, file a motion in accordance with the

provisions of Sec. 1780.25 to strike or otherwise limit the request. If

an objection is made to only a portion of an item or category in a

request, the objection shall specify that portion. Any objections not

made in accordance with this paragraph and Sec. 1780.25 are waived.

(2) The party who served the request that is the subject of a

motion to strike or limit may file a written response within five days

of service of the motion. No other party may file a response.

(e) Privilege. At the time other documents are produced, all

documents withheld on the grounds of privilege must be reasonably

identified, together with a statement of the basis for the assertion of

privilege. When similar documents that are protected by deliberative

process, attorney work-product, or attorney-client privilege are

voluminous, these documents may be identified by category instead of by

individual document. The presiding officer has discretion to determine

when the identification by category is insufficient.

(f) Motions to compel production. (1) If a party withholds any

documents as privileged or fails to comply fully with a discovery

request, the requesting party may, within ten days of the assertion of

privilege or of the time the failure to comply becomes known to the

requesting party, file a motion in accordance with the provisions of

Sec. 1780.25 for the issuance of a subpoena compelling production.

(2) The party who asserted the privilege or failed to comply with

the request may, within five days of service of a motion for the

issuance of a subpoena compelling production, file a written response

to the motion. No other party may file a response.

(g) Ruling on motions. After the time for filing responses to

motions pursuant to this section has expired, the presiding officer

shall rule promptly on all such motions. If the presiding officer

determines that a discovery request or any of its terms calls for

irrelevant material, is unreasonable, oppressive, excessive in scope,

unduly burdensome, or repetitive of previous requests, or seeks to

obtain privileged documents, he may deny or modify the request and may

issue appropriate protective orders, upon such conditions as justice

may require. The pendency of a motion to strike or limit discovery or

to compel production shall not be a basis for staying or continuing the

proceeding, unless otherwise ordered by the presiding officer.

Notwithstanding any other provision in this part, the presiding officer

may not release, or order a party to produce, documents withheld on

grounds of privilege if the party has stated to the presiding officer

its intention to file a timely motion for interlocutory review of the

presiding officer's order to produce the documents, until the motion

for interlocutory review has been decided.

(h) Enforcing discovery subpoenas. If the presiding officer issues

a subpoena compelling production of documents by a party, the

subpoenaing party may, in the event of noncompliance and to the extent

authorized by applicable law, apply to any appropriate United States

district court for an order requiring compliance with the subpoena. A

party's right to seek court enforcement of a subpoena shall not in any

manner limit the sanctions that may be imposed by the presiding officer

against a party who fails to produce or induces another to fail to

produce subpoenaed documents.

Sec. 1780.28 Document subpoenas to nonparties.

(a) General rules. (1) Any party may apply to the presiding officer

for the issuance of a document discovery subpoena addressed to any

person who is not a party to the proceeding. The application must

contain a proposed document subpoena and a brief statement showing the

general relevance and reasonableness of the scope of documents sought.

The subpoenaing party shall specify a reasonable time, place, and

manner for production in response to the subpoena.

(2) A party shall only apply for a document subpoena under this

section within the time period during which such party could serve a

discovery request under Sec. 1780.27. The party obtaining the document

subpoena is responsible for serving it on the subpoenaed person and for

serving copies on all parties. Document subpoenas may be served in any

State, territory, or possession of the United States, the District of

Columbia, or as otherwise provided by law.

(3) The presiding officer shall issue promptly any document

subpoena applied for under this section; except that, if the presiding

officer determines that the application does not set forth a valid

basis for the issuance of the subpoena, or that any of its terms are

unreasonable, oppressive, excessive in scope, or unduly burdensome, he

may refuse to issue the subpoena or may issue it in a modified form

upon such conditions as may be determined by the presiding officer.

(b) Motion to quash or modify. (1) Any person to whom a document

subpoena is directed may file a motion to quash or modify such

subpoena, accompanied by a statement of the basis for quashing or

modifying the subpoena. The movant shall serve the motion on all

parties and any party may respond to such motion within ten days of

service of the motion.

(2) Any motion to quash or modify a document subpoena must be filed

on the same basis, including the assertion of privilege, upon which a

party could object to a discovery request under Sec. 1780.27 and during

the same time limits during which such an objection could be filed.

(c) Enforcing document subpoenas. If a subpoenaed person fails to

comply with any subpoena issued pursuant to this section or any order

of the presiding officer that directs compliance with all or any

portion of a document subpoena, the subpoenaing party or any other

[[Page 72516]]

aggrieved party may, to the extent authorized by applicable law, apply

to an appropriate United States district court for an order requiring

compliance with the subpoena. A party's right to seek court enforcement

of a document subpoena shall in no way limit the sanctions that may be

imposed by the presiding officer on a party who induces a failure to

comply with subpoenas issued under this section.

Sec. 1780.29 Deposition of witness unavailable for hearing.

(a) General rules. (1) If a witness will not be available for the

hearing, a party desiring to preserve that witness' testimony for the

record may apply in accordance with the procedures set forth in

paragraph (a)(2) of this section to the presiding officer for the

issuance of a subpoena, including a subpoena duces tecum, requiring the

attendance of the witness at a deposition. The presiding officer may

issue a deposition subpoena under this section upon a showing that--

(i) The witness will be unable to attend or may be prevented from

attending the hearing because of age, sickness, or infirmity, or will

be otherwise unavailable;

(ii) The witness' unavailability was not produced or caused by the

subpoenaing party;

(iii) The testimony is reasonably expected to be material; and

(iv) Taking the deposition will not result in any undue burden to

any other party and will not cause undue delay of the proceeding.

(2) The application must contain a proposed deposition subpoena and

a brief statement of the reasons for the issuance of the subpoena. The

subpoena must name the witness whose deposition is to be taken and

specify the time and place for taking the deposition. A deposition

subpoena may require the witness to be deposed anywhere within the

United States and its possessions and territories in which that witness

resides or has a regular place of employment or such other convenient

place as the presiding officer shall fix.

(3) Subpoenas must be issued promptly upon request, unless the

presiding officer determines that the request fails to set forth a

valid basis under this section for its issuance. Before making a

determination that there is no valid basis for issuing the subpoena,

the presiding officer shall require a written response from the party

requesting the subpoena or require attendance at a conference to

determine whether there is a valid basis upon which to issue the

requested subpoena.

(4) The party obtaining a deposition subpoena is responsible for

serving it on the witness and for serving copies on all parties. Unless

the presiding officer orders otherwise, no deposition under this

section shall be taken on fewer than 10 days' notice to the witness and

all parties. Deposition subpoenas may be served anywhere within the

United States or its possessions or territories on any person doing

business anywhere within the United States or its possessions or

territories, or as otherwise permitted by law.

(b) Objections to deposition subpoenas. (1) The witness and any

party who has not had an opportunity to oppose a deposition subpoena

issued under this section may file a motion under Sec. 1780.25 with the

presiding officer to quash or modify the subpoena prior to the time for

compliance specified in the subpoena, but not more than 10 days after

service of the subpoena.

(2) A statement of the basis for the motion to quash or modify a

subpoena issued under this section must accompany the motion. The

motion must be served on all parties.

(c) Procedure upon deposition. (1) Each witness testifying pursuant

to a deposition subpoena must be duly sworn and each party shall have

the right to examine the witness. Objections to questions or documents

must be in short form, stating the grounds for the objection. Failure

to object to questions or documents is not deemed a waiver except where

the ground for objection might have been avoided if the objection had

been presented timely. All questions, answers and objections must be

recorded.

(2) Any party may move before the presiding officer for an order

compelling the witness to answer any questions the witness has refused

to answer or submit any evidence that, during the deposition, the

witness has refused to submit.

(3) The deposition must be subscribed by the witness, unless the

parties and the witness, by stipulation, have waived the signing, or

the witness is ill, cannot be found, or has refused to sign. If the

deposition is not subscribed by the witness, the court reporter taking

the deposition shall certify that the transcript is a true and complete

transcript of the deposition.

(d) Enforcing subpoenas. If a subpoenaed person fails to comply

with any subpoena issued pursuant to this section or with any order of

the presiding officer made upon motion under paragraph (c)(2) of this

section, the subpoenaing party or other aggrieved party may, to the

extent authorized by applicable law, apply to an appropriate United

States district court for an order requiring compliance with the

portions of the subpoena that the presiding officer has ordered

enforced. A party's right to seek court enforcement of a deposition

subpoena in no way limits the sanctions that may be imposed by the

presiding officer on a party who fails to comply with or induces a

failure to comply with a subpoena issued under this section.

Sec. 1780.30 Interlocutory review.

(a) General rule. The Director may review a ruling of the presiding

officer prior to the certification of the record to the Director only

in accordance with the procedures set forth in this section.

(b) Scope of review. The Director may exercise interlocutory review

of a ruling of the presiding officer if the Director finds that--

(1) The ruling involves a controlling question of law or policy as

to which substantial grounds exist for a difference of opinion;

(2) Immediate review of the ruling may materially advance the

ultimate termination of the proceeding;

(3) Subsequent modification of the ruling at the conclusion of the

proceeding would be an inadequate remedy; or

(4) Subsequent modification of the ruling would cause unusual delay

or expense.

(c) Procedure. Any motion for interlocutory review shall be filed

by a party with the presiding officer within ten days of his ruling.

Upon the expiration of the time for filing all responses, the presiding

officer shall refer the matter to the Director for final disposition.

In referring the matter to the Director, the presiding officer may

indicate agreement or disagreement with the asserted grounds for

interlocutory review of the ruling in question.

(d) Suspension of proceeding. Neither a request for interlocutory

review nor any disposition of such a request by the Director under this

section suspends or stays the proceeding unless otherwise ordered by

the presiding officer or the Director.

Sec. 1780.31 Summary disposition.

(a) In general. The presiding officer shall recommend that the

Director issue a final order granting a motion for summary disposition

if the undisputed pleaded facts, admissions, affidavits, stipulations,

documentary evidence, matters as to which official notice may be taken

and any other evidentiary materials properly submitted in

[[Page 72517]]

connection with a motion for summary disposition show that--

(1) There is no genuine issue as to any material fact; and

(2) The movant is entitled to a decision in its favor as a matter

of law.

(b) Filing of motions and responses. (1) Any party who believes

there is no genuine issue of material fact to be determined and that

such party is entitled to a decision as a matter of law may move at any

time for summary disposition in its favor of all or any part of the

proceeding. Any party, within 20 days after service of such motion or

within such time period as allowed by the presiding officer, may file a

response to such motion.

(2) A motion for summary disposition must be accompanied by a

statement of material facts as to which the movant contends there is no

genuine issue. Such motion must be supported by documentary evidence,

which may take the form of admissions in pleadings, stipulations,

written interrogatory responses, depositions, investigatory

depositions, transcripts, affidavits and any other evidentiary

materials that the movant contends support its position. The motion

must also be accompanied by a brief containing the points and

authorities in support of the contention of the movant. Any party

opposing a motion for summary disposition must file a statement setting

forth those material facts as to which such party contends a genuine

dispute exists. Such opposition must be supported by evidence of the

same type as that submitted with the motion for summary disposition and

a brief containing the points and authorities in support of the

contention that summary disposition would be inappropriate.

(c) Hearing on motion. At the request of any party or on his own

motion, the presiding officer may hear oral argument on the motion for

summary disposition.

(d) Decision on motion. Following receipt of a motion for summary

disposition and all responses thereto, the presiding officer shall

determine whether the movant is entitled to summary disposition. If the

presiding officer determines that summary disposition is warranted, the

presiding officer shall submit a recommended decision to that effect to

the Director, under Sec. 1780.53. If the presiding officer finds that

the moving party is not entitled to summary disposition, the presiding

officer shall make a ruling denying the motion.

Sec. 1780.32 Partial summary disposition.

If the presiding officer determines that a party is entitled to

summary disposition as to certain claims only, he shall defer

submitting a recommended decision to the Director as to those claims. A

hearing on the remaining issues must be ordered. Those claims for which

the presiding officer has determined that summary disposition is

warranted will be addressed in the recommended decision filed at the

conclusion of the hearing.

Sec. 1780.33 Scheduling and prehearing conferences.

(a) Scheduling conference. Within 30 days of service of the notice

or order commencing a proceeding or such other time as the parties may

agree, the presiding officer shall direct representatives for all

parties to meet with him in person at a specified time and place prior

to the hearing or to confer by telephone for the purpose of scheduling

the course and conduct of the proceeding. This meeting or telephone

conference is called a ``scheduling conference.'' The identification of

potential witnesses, the time for and manner of discovery and the

exchange of any prehearing materials including witness lists,

statements of issues, stipulations, exhibits and any other materials

may also be determined at the scheduling conference.

(b) Prehearing conferences. The presiding officer may, in addition

to the scheduling conference, on his own motion or at the request of

any party, direct representatives for the parties to meet with him (in

person or by telephone) at a prehearing conference to address any or

all of the following:

(1) Simplification and clarification of the issues;

(2) Stipulations, admissions of fact and the contents, authenticity

and admissibility into evidence of documents;

(3) Matters of which official notice may be taken;

(4) Limitation of the number of witnesses;

(5) Summary disposition of any or all issues;

(6) Resolution of discovery issues or disputes;

(7) Amendments to pleadings; and

(8) Such other matters as may aid in the orderly disposition of the

proceeding.

(c) Transcript. The presiding officer, in his discretion, may

require that a scheduling or prehearing conference be recorded by a

court reporter. A transcript of the conference and any materials filed,

including orders, becomes part of the record of the proceeding. A party

may obtain a copy of the transcript at such party's expense.

(d) Scheduling or prehearing orders. Within a reasonable time

following the conclusion of the scheduling conference or any prehearing

conference, the presiding officer shall serve on each party an order

setting forth any agreements reached and any procedural determinations

made.

Sec. 1780.34 Prehearing submissions.

(a) Within the time set by the presiding officer, but in no case

later than 10 days before the start of the hearing, each party shall

serve on every other party the serving party's--

(1) Prehearing statement;

(2) Final list of witnesses to be called to testify at the hearing,

including name and address of each witness and a short summary of the

expected testimony of each witness;

(3) List of the exhibits to be introduced at the hearing along with

a copy of each exhibit; and

(4) Stipulations of fact, if any.

(b) Effect of failure to comply. No witness may testify and no

exhibits may be introduced at the hearing if such witness or exhibit is

not listed in the prehearing submissions pursuant to paragraph (a) of

this section, except for good cause shown.

Sec. 1780.35 Hearing subpoenas.

(a) Issuance. (1) Upon application of a party showing general

relevance and reasonableness of scope of the testimony or other

evidence sought, the presiding officer may issue a subpoena or a

subpoena duces tecum requiring the attendance of a witness at the

hearing or the production of documentary or physical evidence at such

hearing. The application for a hearing subpoena must also contain a

proposed subpoena specifying the attendance of a witness or the

production of evidence from any State, commonwealth, possession,

territory of the United States, or the District of Columbia, or as

otherwise provided by law at any designated place where the hearing is

being conducted. The party making the application shall serve a copy of

the application and the proposed subpoena on every other party.

(2) A party may apply for a hearing subpoena at any time before the

commencement of or during a hearing. During a hearing, a party may make

an application for a subpoena orally on the record before the presiding

officer.

(3) The presiding officer shall promptly issue any hearing subpoena

applied for under this section; except that, if the presiding officer

determines that the application does not set forth a valid basis for

the issuance of the subpoena, or that any of its terms are

[[Page 72518]]

unreasonable, oppressive, excessive in scope, or unduly burdensome, he

may refuse to issue the subpoena or may issue the subpoena in a

modified form upon any conditions consistent with this subpart. Upon

issuance by the presiding officer, the party making the application

shall serve the subpoena on the person named in the subpoena and on

each party.

(b) Motion to quash or modify. (1) Any person to whom a hearing

subpoena is directed or any party may file a motion to quash or modify

such subpoena, accompanied by a statement of the basis for quashing or

modifying the subpoena. The movant must serve the motion on each party

and on the person named in the subpoena. Any party may respond to the

motion within ten days of service of the motion.

(2) Any motion to quash or modify a hearing subpoena must be filed

prior to the time specified in the subpoena for compliance, but no more

than 10 days after the date of service of the subpoena upon the movant.

(c) Enforcing subpoenas. If a subpoenaed person fails to comply

with any subpoena issued pursuant to this section or any order of the

presiding officer that directs compliance with all or any portion of a

hearing subpoena, the subpoenaing party or any other aggrieved party

may seek enforcement of the subpoena pursuant to Sec. 1780.28(c). A

party's right to seek court enforcement of a hearing subpoena shall in

no way limit the sanctions that may be imposed by the presiding officer

on a party who induces a failure to comply with subpoenas issued under

this section.

Subpart C--Hearing and Posthearing Proceedings

Sec. 1780.50 Conduct of hearings.

(a) General rules. (1) Hearings shall be conducted in accordance

with 5 U.S.C. chapter 5 and other applicable law and so as to provide a

fair and expeditious presentation of the relevant disputed issues.

Except as limited by this subpart, each party has the right to present

its case or defense by oral and documentary evidence and to conduct

such cross examination as may be required for full disclosure of the

facts.

(2) Order of hearing. OFHEO's counsel of record shall present its

case-in-chief first, unless otherwise ordered by the presiding officer

or unless otherwise expressly specified by law or regulation. OFHEO's

counsel of record shall be the first party to present an opening

statement and a closing statement and may make a rebuttal statement

after the respondent's closing statement. If there are multiple

respondents, respondents may agree among themselves as to their order

or presentation of their cases, but if they do not agree, the presiding

officer shall fix the order.

(3) Examination of witnesses. Only one representative for each

party may conduct an examination of a witness, except that in the case

of extensive direct examination, the presiding officer may permit more

than one representative for the party presenting the witness to conduct

the examination. A party may have one representative conduct the direct

examination and another representative conduct re-direct examination of

a witness, or may have one representative conduct the cross examination

of a witness and another representative conduct the re-cross

examination of a witness.

(4) Stipulations. Unless the presiding officer directs otherwise,

all documents that the parties have stipulated as admissible shall be

admitted into evidence upon commencement of the hearing.

(b) Transcript. The hearing shall be recorded and transcribed. The

transcript shall be made available to any party upon payment of the

cost thereof. The presiding officer shall have authority to order the

record corrected, either upon motion to correct, upon stipulation of

the parties, or following notice to the parties upon the presiding

officer's own motion.

Sec. 1780.51 Evidence.

(a) Admissibility. (1) Except as is otherwise set forth in this

section, relevant, material and reliable evidence that is not unduly

repetitive is admissible to the fullest extent authorized by the

Administrative Procedure Act and other applicable law.

(2) Evidence that would be admissible under the Federal Rules of

Evidence is admissible in a proceeding conducted pursuant to this

subpart.

(3) Evidence that would be inadmissible under the Federal Rules of

Evidence may not be deemed or ruled to be inadmissible in a proceeding

conducted pursuant to this subpart if such evidence is relevant,

material, reliable and not unduly repetitive.

(b) Official notice. (1) Official notice may be taken of any

material fact that may be judicially noticed by a United States

district court and any material information in the official public

records of any Federal or State government agency.

(2) All matters officially noticed by the presiding officer or the

Director shall appear on the record.

(3) If official notice is requested of any material fact, the

parties, upon timely request, shall be afforded an opportunity to

object.

(c) Documents. (1) A duplicate copy of a document is admissible to

the same extent as the original, unless a genuine issue is raised as to

whether the copy is in some material respect not a true and legible

copy of the original.

(2) Subject to the requirements of paragraph (a)(1) of this

section, any document, including a report of examination, oversight

activity, inspection, or visitation, prepared by OFHEO or by another

Federal or State financial institutions regulatory agency is admissible

either with or without a sponsoring witness.

(3) Witnesses may use existing or newly created charts, exhibits,

calendars, calculations, outlines, or other graphic material to

summarize, illustrate, or simplify the presentation of testimony. Such

materials may, subject to the presiding officer's discretion, be used

with or without being admitted into evidence.

(d) Objections. (1) Objections to the admissibility of evidence

must be timely made and rulings on all objections must appear in the

record.

(2) When an objection to a question or line of questioning is

sustained, the examining representative of record may make a specific

proffer on the record of what he expected to prove by the expected

testimony of the witness. The proffer may be by representation of the

representative or by direct interrogation of the witness.

(3) The presiding officer shall retain rejected exhibits,

adequately marked for identification, for the record and transmit such

exhibits to the Director.

(4) Failure to object to admission of evidence or to any ruling

constitutes a waiver of the objection.

(e) Stipulations. The parties may stipulate as to any relevant

matters of fact or the authentication of any relevant documents. Such

stipulations must be received in evidence at a hearing and are binding

on the parties with respect to the matters therein stipulated.

(f) Depositions of unavailable witnesses. (1) If a witness is

unavailable to testify at a hearing and that witness has testified in a

deposition in accordance with Sec. 1780.29, a party may offer as

evidence all or any part of the transcript of the deposition, including

deposition exhibits, if any.

(2) Such deposition transcript is admissible to the same extent

that testimony would have been admissible had that person testified at

the hearing, provided that if a witness refused to answer proper

questions during the

[[Page 72519]]

depositions, the presiding officer may, on that basis, limit the

admissibility of the deposition in any manner that justice requires.

(3) Only those portions of a deposition received in evidence at the

hearing constitute a part of the record.

Sec. 1780.52 Post hearing filings.

(a) Proposed findings and conclusions and supporting briefs. (1)

Using the same method of service for each party, the presiding officer

shall serve notice upon each party that the certified transcript,

together with all hearing exhibits and exhibits introduced but not

admitted into evidence at the hearing, has been filed. Any party may

file with the presiding officer proposed findings of fact, proposed

conclusions of law and a proposed order within 30 days after the

parties have received notice that the transcript has been filed with

the presiding officer, unless otherwise ordered by the presiding

officer.

(2) Proposed findings and conclusions must be supported by citation

to any relevant authorities and by page references to any relevant

portions of the record. A posthearing brief may be filed in support of

proposed findings and conclusions, either as part of the same document

or in a separate document.

(3) Any party is deemed to have waived any issue not raised in

proposed findings or conclusions timely filed by that party.

(b) Reply briefs. Reply briefs may be filed within 15 days after

the date on which the parties' proposed findings and conclusions and

proposed order are due. Reply briefs must be limited strictly to

responding to new matters, issues, or arguments raised in another

party's papers. A party who has not filed proposed findings of fact and

conclusions of law or a posthearing brief may not file a reply brief.

(c) Simultaneous filing required. The presiding officer shall not

order the filing by any party of any brief or reply brief supporting

proposed findings and conclusions in advance of the other party's

filing of its brief.

Sec. 1780.53 Recommended decision and filing of record.

(a) Filing of recommended decision and record. Within 45 days after

expiration of the time allowed for filing reply briefs under

Sec. 1780.52(b), the presiding officer shall file with and certify to

the Director, for decision, the record of the proceeding. The record

must include the presiding officer's recommended decision, recommended

findings of fact and conclusions of law, and proposed order; all

prehearing and hearing transcripts, exhibits and rulings; and the

motions, briefs, memoranda and other supporting papers filed in

connection with the hearing. The presiding officer shall serve upon

each party the recommended decision, recommended findings and

conclusions, and proposed order.

(b) Filing of index. At the same time the presiding officer files

with and certifies to the Director, for final determination, the record

of the proceeding, the presiding officer shall furnish to the Director

a certified index of the entire record of the proceeding. The certified

index shall include, at a minimum, an entry for each paper, document or

motion filed with the presiding officer in the proceeding, the date of

the filing, and the identity of the filer. The certified index shall

also include an exhibit index containing, at a minimum, an entry

consisting of exhibit number and title or description for: Each exhibit

introduced and admitted into evidence at the hearing; each exhibit

introduced but not admitted into evidence at the hearing; each exhibit

introduced and admitted into evidence after the completion of the

hearing; and each exhibit introduced but not admitted into evidence

after the completion of the hearing.

Sec. 1780.54 Exceptions to recommended decision.

(a) Filing exceptions. Within 30 days after service of the

recommended decision, recommended findings and conclusions, and

proposed order under Sec. 1780.53, a party may file with the Director

written exceptions to the presiding officer's recommended decision,

recommended findings and conclusions, or proposed order; to the

admission or exclusion of evidence; or to the failure of the presiding

officer to make a ruling proposed by a party. A supporting brief may be

filed at the time the exceptions are filed, either as part of the same

document or in a separate document.

(b) Effect of failure to file or raise exceptions. (1) Failure of a

party to file exceptions to those matters specified in paragraph (a) of

this section within the time prescribed is deemed a waiver of objection

thereto.

(2) No exception need be considered by the Director if the party

taking exception had an opportunity to raise the same objection, issue,

or argument before the presiding officer and failed to do so.

(c) Contents. (1) All exceptions and briefs in support of such

exceptions must be confined to the particular matters in or omissions

from the presiding officer's recommendations to which that party takes

exception.

(2) All exceptions and briefs in support of exceptions must set

forth page or paragraph references to the specific parts of the

presiding officer's recommendations to which exception is taken, the

page or paragraph references to those portions of the record relied

upon to support each exception and the legal authority relied upon to

support each exception. Exceptions and briefs in support shall not

exceed a total of 30 pages, except by leave of the Director on motion.

(3) One reply brief may be submitted by each party within ten days

of service of exceptions and briefs in support of exceptions. Reply

briefs shall not exceed 15 pages, except by leave of the Director on

motion.

Sec. 1780.55 Review by Director.

(a) Notice of submission to the Director. When the Director

determines that the record in the proceeding is complete, the Director

shall serve notice upon the parties that the proceeding has been

submitted to the Director for final decision.

(b) Oral argument before the Director. Upon the initiative of the

Director or on the written request of any party filed with the Director

within the time for filing exceptions under Sec. 1780.54, the Director

may order and hear oral argument on the recommended findings,

conclusions, decision and order of the presiding officer. A written

request by a party must show good cause for oral argument and state

reasons why arguments cannot be presented adequately in writing. A

denial of a request for oral argument may be set forth in the

Director's final decision. Oral argument before the Director must be

transcribed.

(c) Director's final decision. (1) Decisional employees may advise

and assist the Director in the consideration and disposition of the

case. The final decision of the Director will be based upon review of

the entire record of the proceeding, except that the Director may limit

the issues to be reviewed to those findings and conclusions to which

opposing arguments or exceptions have been filed by the parties.

(2) The Director shall render a final decision and issue an

appropriate order within 90 days after notification of the parties that

the case has been submitted for final decision, unless the Director

orders that the action or any aspect thereof be remanded to the

presiding officer for further proceedings. Copies of the final decision

and order of the Director shall be served upon each party

[[Page 72520]]

to the proceeding and upon other persons required by statute.

Sec. 1780.56 Exhaustion of administrative remedies.

To exhaust administrative remedies as to any issue on which a party

disagrees with the presiding officer's recommendations, a party must

file exceptions with the Director under Sec. 1780.54. A party must

exhaust administrative remedies as a precondition to seeking judicial

review of any decision issued under this subpart.

Sec. 1780.57 Stays pending judicial review.

The commencement of proceedings for judicial review of a final

decision and order of the Director may not, unless specifically ordered

by the Director or a reviewing court, operate as a stay of any order

issued by the Director. The Director may, in his discretion and on such

terms as he finds just, stay the effectiveness of all or any part of an

order of the Director pending a final decision on a petition for review

of that order.

Subpart D--Rules of Practice Before the Office of Federal Housing

Enterprise Oversight

Sec. 1780.70 Scope.

This subpart contains rules governing practice by parties or their

representatives before OFHEO.

This subpart addresses the imposition of sanctions by the presiding

officer or the Director against parties or their representatives in an

adjudicatory proceeding under this part. This subpart also covers other

disciplinary sanctions--censure, suspension or disbarment--against

individuals who appear before OFHEO in a representational capacity

either in an adjudicatory proceeding under this part or in any other

matters connected with presentations to OFHEO relating to a client's or

other principal's rights, privileges, or liabilities. This

representation includes, but is not limited to, the practice of

attorneys and accountants. Employees of OFHEO are not subject to

disciplinary proceedings under this subpart.

Sec. 1780.71 Definitions.

Practice before OFHEO for the purposes of this subpart, includes,

but is not limited to, transacting any business with OFHEO as counsel,

representative or agent for any other person, unless the Director

orders otherwise. Practice before OFHEO also includes the preparation

of any statement, opinion, or other paper by a counsel, representative

or agent that is filed with OFHEO in any certification, notification,

application, report, or other document, with the consent of such

counsel, representative or agent. Practice before OFHEO does not

include work prepared for an Enterprise solely at the request of the

Enterprise for use in the ordinary course of its business.

Sec. 1780.72 Appearance and practice in adjudicatory proceedings.

(a) Appearance before OFHEO or a presiding officer. (1) By

attorneys. A party may be represented by an attorney who is a member in

good standing of the bar of the highest court of any State,

commonwealth, possession, territory of the United States, or the

District of Columbia and who is not currently suspended or disbarred

from practice before OFHEO.

(2) By nonattorneys. An individual may appear on his own behalf. A

member of a partnership may represent the partnership and a duly

authorized officer, director, employee, or other agent of any

corporation or other entity not specifically listed herein may

represent such corporation or other entity; provided that such officer,

director, employee, or other agent is not currently suspended or

disbarred from practice before OFHEO. A duly authorized officer or

employee of any Government unit, agency, or authority may represent

that unit, agency, or authority.

(b) Notice of appearance. Any person appearing in a representative

capacity on behalf of a party, including OFHEO, shall execute and file

a notice of appearance with the presiding officer at or before the time

such person submits papers or otherwise appears on behalf of a party in

the adjudicatory proceeding. Such notice of appearance shall include a

written declaration that the individual is currently qualified as

provided in paragraphs (a)(1) or (a)(2) of this section and is

authorized to represent the particular party. By filing a notice of

appearance on behalf of a party in an adjudicatory proceeding, the

representative thereby agrees and represents that he is authorized to

accept service on behalf of the represented party and that, in the

event of withdrawal from representation, he or she will, if required by

the presiding officer, continue to accept service until a new

representative has filed a notice of appearance or until the

represented party indicates that he or she will proceed on a pro se

basis. Unless the representative filing the notice is an attorney, the

notice of appearance shall also be executed by the person represented

or, if the person is not an individual, by the chief executive officer,

or duly authorized officer of that person.

Sec. 1780.73 Conflicts of interest.

(a) Conflict of interest in representation. No representative shall

represent another person in an adjudicatory proceeding if it reasonably

appears that such representation may be limited materially by that

representative's responsibilities to a third person or by that

representative's own interests. The presiding officer may take

corrective measures at any stage of a proceeding to cure a conflict of

interest in representation, including the issuance of an order limiting

the scope of representation or disqualifying an individual from

appearing in a representative capacity for the duration of the

proceeding.

(b) Certification and waiver. If any person appearing as counsel or

other representative represents two or more parties to an adjudicatory

proceeding or also represents a nonparty on a matter relevant to an

issue in the proceeding, that representative must certify in writing at

the time of filing the notice of appearance required by Sec. 1780.72--

(1) That the representative has personally and fully discussed the

possibility of conflicts of interest with each such party and nonparty;

(2) That each such party and nonparty waives any right it might

otherwise have had to assert any known conflicts of interest or to

assert any non-material conflicts of interest during the course of the

proceeding.

Sec. 1780.74 Sanctions.

(a) General rule. Appropriate sanctions 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 required by applicable statute,

regulation, or order, and that act or failure to act--

(1) Constitutes contemptuous conduct. Contemptuous conduct includes

dilatory, obstructionist, egregious, contumacious, unethical, or other

improper conduct at any phase of any adjudicatory proceeding;

(2) Has caused some other party material and substantive injury,

including, but not limited to, incurring expenses including attorney's

fees or experiencing prejudicial delay;

(3) Is a clear and unexcused violation of an applicable statute,

regulation, or order; or

(4) Has delayed the proceeding unduly.

(b) Sanctions. Sanctions that may be imposed include, but are not

limited to, any one or more of the following:

[[Page 72521]]

(1) Issuing an order against a party;

(2) Rejecting or striking any testimony or documentary evidence

offered, or other papers filed, by the party;

(3) Precluding the party from contesting specific issues or

findings;

(4) Precluding the party from offering certain evidence or from

challenging or contesting certain evidence offered by another party;

(5) Precluding the party from making a late filing or conditioning

a late filing on any terms that are just;

(6) Assessing reasonable expenses, including attorney's fees,

incurred by any other party as a result of the improper action or

failure to act.

(c) Procedure for imposition of sanctions. (1) The presiding

officer, on the motion of any party, or on his own motion, and after

such notice and responses as may be directed by the presiding officer,

may impose any sanction authorized by this section. The presiding

officer shall submit to the Director for final ruling any sanction that

would result in a final order that terminates the case on the merits or

is otherwise dispositive of the case.

(2) Except as provided in paragraph (d) of this section, no

sanction authorized by this section, other than refusing to accept late

papers, shall be imposed without prior notice to all parties and an

opportunity for any representative or party against whom sanctions

would be imposed to be heard. The presiding officer shall determine and

direct the appropriate notice and form for such opportunity to be

heard. The opportunity to be heard may be limited to an opportunity to

respond verbally immediately after the act or inaction in question is

noted by the presiding officer.

(3) For purposes of interlocutory review, motions for the

imposition of sanctions by any party and the imposition of sanctions

shall be treated the same as motions for any other ruling by the

presiding officer.

(4) Nothing in this section shall be read to preclude the presiding

officer or the Director from taking any other action or imposing any

other restriction or sanction authorized by any applicable statute or

regulation.

(d) Sanctions for contemptuous conduct. If, during the course of

any proceeding, a presiding officer finds any representative or any

individual representing himself to have engaged in contemptuous

conduct, the presiding officer may summarily suspend that individual

from participating in that or any related proceeding or impose any

other appropriate sanction.

Sec. 1780.75 Censure, suspension, disbarment and reinstatement.

(a) Discretionary censure, suspension and disbarment. (1) The

Director may censure any individual who practices or attempts to

practice before OFHEO or suspend or revoke the privilege to appear or

practice before OFHEO of such individual if, after notice of and

opportunity for hearing in the matter, that individual is found by the

Director--

(i) Not to possess the requisite qualifications or competence to

represent others;

(ii) To be seriously lacking in character or integrity or to have

engaged in material unethical or improper professional conduct;

(iii) To have caused unfair and material injury or prejudice to

another party, such as prejudicial delay or unnecessary expenses

including attorney's fees;

(iv) To have engaged in, or aided and abetted, a material and

knowing violation of the 1992 Act, the Federal Home Loan Mortgage

Corporation Act, the Federal National Mortgage Association Charter Act

or the rules or regulations issued under those statutes or any other

law or regulation governing Enterprise operations;

(v) To have engaged in contemptuous conduct before OFHEO;

(vi) With intent to defraud in any manner, to have willfully and

knowingly deceived, misled, or threatened any client or prospective

client; or

(vii) Within the last 10 years, to have been convicted of an

offense involving moral turpitude, dishonesty or breach of trust, if

the conviction has not been reversed on appeal. A conviction within the

meaning of this paragraph shall be deemed to have occurred when the

convicting court enters its judgment or order, regardless of whether an

appeal is pending or could be taken and includes a judgment or an order

on a plea of nolo contendere or on consent, regardless of whether a

violation is admitted in the consent.

(2) Suspension or revocation on the grounds set forth in paragraphs

(a)(1) (ii), (iii), (iv), (v), (vi) and (vii) of this section shall

only be ordered upon a further finding that the individual's conduct or

character was sufficiently egregious as to justify suspension or

revocation. Suspension or disbarment under this paragraph shall

continue until the applicant has been reinstated by the Director for

good cause shown or until, in the case of a suspension, the suspension

period has expired.

(3) If the final order against the respondent is for censure, the

individual may be permitted to practice before OFHEO, but such

individual's future representations may be subject to conditions

designed to promote high standards of conduct. If a written letter of

censure is issued, a copy will be maintained in OFHEO's files.

(b) Mandatory suspension and disbarment. (1) Any counsel who has

been and remains suspended or disbarred by a court of the United States

or of any State, commonwealth, possession, territory of the United

States or the District of Columbia; any accountant or other licensed

expert whose license to practice has been revoked in any State,

commonwealth, possession, territory of the United States or the

District of Columbia; any person who has been and remains suspended or

barred from practice before the Department of Housing and Urban

Development, the Office of the Comptroller of the Currency, the Board

of Governors of the Federal Reserve System, the Office of Thrift

Supervision, the Federal Deposit Insurance Corporation, the National

Credit Union Administration, the Federal Housing Finance Board, the

Farm Credit Administration, the Securities and Exchange Commission, or

the Commodity Futures Trading Commission is also suspended

automatically from appearing or practicing before OFHEO. A disbarment

or suspension within the meaning of this paragraph shall be deemed to

have occurred when the disbarring or suspending agency or tribunal

enters its judgment or order, regardless of whether an appeal is

pending or could be taken and regardless of whether a violation is

admitted in the consent.

(2) A suspension or disbarment from practice before OFHEO under

paragraph (b)(1) of this section shall continue until the person

suspended or disbarred is reinstated under paragraph (d)(2) of this

section.

(c) Notices to be filed. (1) Any individual appearing or practicing

before OFHEO who is the subject of an order, judgment, decree, or

finding of the types set forth in paragraph (b)(1) of this section

shall file promptly with the Director a copy thereof, together with any

related opinion or statement of the agency or tribunal involved.

(2) Any individual appearing or practicing before OFHEO who is or

within the last 10 years has been convicted of a felony or of a

misdemeanor that resulted in a sentence of prison term or in a fine or

restitution order totaling more than $5,000 shall file a notice

promptly with the Director. The notice shall include a copy of the

order imposing the sentence or fine,

[[Page 72522]]

together with any related opinion or statement of the court involved.

(d) Reinstatement. (1) Unless otherwise ordered by the Director, an

application for reinstatement for good cause may be made in writing by

a person suspended or disbarred under paragraph (a)(1) of this section

at any time more than three years after the effective date of the

suspension or disbarment and, thereafter, at any time more than one

year after the person's most recent application for reinstatement. An

applicant for reinstatement under this paragraph (d)(1) may, in the

Director's sole discretion, be afforded a hearing.

(2) An application for reinstatement for good cause by any person

suspended or disbarred under paragraph (b)(1) of this section may be

filed at any time, but not less than 1 year after the applicant's most

recent application. An applicant for reinstatement for good cause under

this paragraph (d)(2) may, in the Director's sole discretion, be

afforded a hearing. However, if all the grounds for suspension or

disbarment under paragraph (b)(1) of this section have been removed by

a reversal of the order of suspension or disbarment or by termination

of the underlying suspension or disbarment, any person suspended or

disbarred under paragraph (b)(1) of this section may apply immediately

for reinstatement and shall be reinstated by OFHEO upon written

application notifying OFHEO that the grounds have been removed.

(e) Conferences. (1) General. Counsel for OFHEO may confer with a

proposed respondent concerning allegations of misconduct or other

grounds for censure, disbarment or suspension, regardless of whether a

proceeding for censure, disbarment or suspension has been commenced. If

a conference results in a stipulation in connection with a proceeding

in which the individual is the respondent, the stipulation may be

entered in the record at the request of either party to the proceeding.

(2) Resignation or voluntary suspension. In order to avoid the

institution of or a decision in a disbarment or suspension proceeding,

a person who practices before OFHEO may consent to censure, suspension

or disbarment from practice. At the discretion of the Director, the

individual may be censured, suspended or disbarred in accordance with

the consent offered.

(f) Hearings under this section. Hearings conducted under this

section shall be conducted in substantially the same manner as other

hearings under this part, provided that in proceedings to terminate an

existing OFHEO suspension or disbarment order, the person seeking the

termination of the order shall bear the burden of going forward with an

application and with proof and that the Director may, in the Director's

sole discretion, direct that any proceeding to terminate an existing

suspension or disbarment by OFHEO be limited to written submissions.

All hearings held under this section shall be closed to the public

unless the Director, on the Director's own motion or upon the request

of a party, otherwise directs.

Dated: December 21, 1999.

Armando Falcon, Jr.,

Director, Office of Federal Housing Enterprise Oversight.

[FR Doc. 99-33461 Filed 12-27-99; 8:45 am]

BILLING CODE 4220-01-P