My posts concerning former bank CEO Patrick Adams and his long, hard, expensive fight to clear his name encouraged one reader to send me a copy of a decision from a couple of months ago that involved another bank officer (actually, the Chairman of a bank) who has been slugging it out with the OCC (and in this case, the Fed) four the last four years over an attempt by the regulators to oust him from his position with the bank. The D.C. Circuit Court of Appeals held in his favor and sent the case back to the banking agencies with some pretty caustic comments.
The entire opinion is an interesting read, but here's a synopsis, paraphrased from one prepared by my correspondent.
Louis DeNaples, was a director and controlling shareholder of a national bank and two bank holding companies. In 2008, Pennsylvania state prosecutors charged him with perjury. But the charges were later withdrawn pursuant to an agreement in which Mr. DeNaples agreed, among other things, to release claims against the state based on irregularities in the underlying grand jury proceeding. Thereafter, the state court expunged the entire prosecution. The Comptroller of the Currency and the Federal Reserve Board, however, concluded that Mr. DeNaples had violated Section 19 of the Federal Deposit Insurance Act, which prohibits a person from participating in a regulated financial institution after entering into a “pretrial diversion or similar program” with respect to certain criminal offenses, including perjury. The agencies thus issued cease-and-desist orders directing Mr. DeNaples to resign from his positions, and to divest his shares, in the regulated institutions.
Mr. DeNaples appealed, arguing, among other things, that (1) his agreement for withdrawal of the perjury charges was not a “pretrial diversion or similar program,” and in any event (2) Section 19 does not apply to expunged convictions. A three-judge panel of the D.C. Circuit unanimously agreed on both counts.
First, the Court held that the banking agencies’ interpretations of Section 19 are not entitled to Chevron deference. The panel adopted DeNaples' argument that no deference is warranted for any part of the Federal Deposit Insurance Act because multiple agencies enforce it, creating the potential for inconsistent agency interpretations, as occurred in this case.
Next, the Court held that the agencies had applied inconsistent and overbroad definitions of the term “pretrial diversion or similar program,” essentially capturing any situation where a person supplies a “quid pro quo for the prosecutor’s withdrawal of charges.” The panel explained that pretrial diversion generally refers to a discrete program that seeks some offender- or community-oriented outcome such as treatment, rehabilitation, or restitution. The Court, moreover, adopted the argument of DeNaples' lawyers that the agencies on remand must consider the meaning of “pretrial diversion” under state law, which they adamantly refused to do in the earlier cease-and-desist proceedings.
Finally, the Court agreed with DeNaples that the OCC’s and the Board’s positions on the impact of expungement were both internally inconsistent and at odds with a published FDIC policy statement. In a stunning rebuke of the agencies, the panel criticized their positions as “bizarre,” “untenable,” “unpredictable,” and a “scattergun approach,” and said that reconciling their views “is like trying to draw a two-dimensional shape on the surface of a grapefruit.”
Trying to draw a two-dimensional shape on the surface of a grapefruit. For four years. A worthy endeavor, no?
Incidentally, the lead counsel for DeNaples (at leas, the lawyer named in the opinion) is Howard Cayne, a well-known D.C. banking law litigator who, like your trusty bloviator, has "danced with the bear" on previous occasions. The man must have a high tolerance for pain. As must Mr. DeNaples.