No. 95-738

In the Supreme Court of the United States
OCTOBER TERM, 1995

UNITED STATES DEPARTMENT OF THE TREASURY,
OFFICE OF THRIFT SUPERVISION, PETITIONER

v.

ROBERT D. RAPAPORT

ON PETITION FOR A WRIT OF CERTIORARI TO THE 
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

CAROLYN J. BUCK
Chief Counsel

THOMAS J. SEGAL
Deputy Chief Counsel

AARON B. KAHN
Principal Litigation Counsel

Office of Thrift Supervision
Washington, D.C. 20552

DREW S. DAYS, III
Solicitor General

FRANK W. HUNGER
Assistant Attorney General

PAUL BENDER
Deputy Solicitor General

DOUGLAS N. LETTER
JACOB M. LEWIS
Attorneys

Department of Justice
Washington, D.C. 20530
(202) 514-2217

---------------------------------------- Page Break ----------------------------------------

QUESTIONS PRESENTED

In 12 U.S.C. 1818(b), Congress authorized federal
banking agencies to issue administrative orders re-
quiring parties who are affiliated with regulated in-
stitutions to cease and desist from, among other
things, violating written regulatory conditions or
agreements with the agency. The law further pro-
vides that such orders may contain provisions that
require the institution-affiliated party to take "affirm-
ative action" to correct conditions resulting from the
violation. The questions presented are:

1. Whether a federal banking agency may order
an affiliated party to comply with a written agree-
ment to pay money only if the agency establishes that
the party was "unjustly enriched" by violating the
agreement or that the violation involved reckless dis-
regard for the law, a regulation, or a prior agency
order.
2. If so, whether the term "unjustly enriched" in
12 U.S.C. 1818(b) (6) (A) (i) is strictly limited by
its historical or "common law" meaning.
3. Whether the court of appeals erred in explicitly
refusing to accord any deference to one agency's in-
terpretation of Section 1818(b), in a case arising
before that agency, on the ground that the same
statute also provides cease-and-desist authority to
three other federal banking agencies.

(I)

---------------------------------------- Page Break ----------------------------------------                     

TABLE OF CONTENTS     

Page

Opinions below . . . . 1
Jurisdiction . . . . 1
Statutory provision involved . . . . 2
Statement . . . . 4                        
Reasons for granting the petition . . . . 8
Conclusion . . . . 25
Appendix A . . . . 1a
Appendix B . . . . 26a

TABLE OF AUTHORITIES

Cases:

Akin v. OTS, 950 F.2d 1180 (5th Cir. 1992) . . . . 20, 21
Bowen v. Massachusetts, 487 U.S. 879 (1988) . . . . 16
Cavallari v. Office of the Comptroller of the Cur-
rency, 57 F.3d 137 (2d Cir. 1995) . . . . 19, 20
Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984) . . . . 7, 18, 20
Larimore v. Comptroller of the Currency, 789 F.2d
1244 (7th Cir. 1986) . . . . 12
Morissette  v. United States, 342 U.S. 246 (1952) . . . . 13
Moskal v. United States, 498 U.S. 103 (1990) . . . . 13-14
Oberstar v. FDIC, 987 F.2d 494 (8th Cir. 1993) . . . . 21
Ocor Products Corp. v. Walt Disney Productions,
682 F. Supp. 90 (D.N.H. 1988) . . . . 15
1185 Ave. of Ams. Ass'n v. RTC, 22 F.3d 494 (2d
Cir. 1994) . . . . 21
Palmer, In re, FDIC Enforcement Decisions &
Orders, Vol. 1, A-1808.10 (1991) . . . . 19
Rapp v. OTS, 52 F.3d 1510 (l0th Cir. 1995) . . . . 21
SEC v. Chenery Corp., 318 U.S. 80 (1943) . . . . 17
Seidman v. OTS, 37 F.3d 911 (3d Cir. 1994) . . . . 21
Simpson v. OTS, 29 F.3d 1418 (9th Cir. 1994) . . . . 19, 20, 21

(III)

---------------------------------------- Page Break ----------------------------------------

IV

Cases-Continued:              

Page

Stevens v. Department of Treasury, 500 U.S. 1
(1991) . . . . 17
Taylor v. United States, 495 U.S. 575 (1990) . . . . 14
United States v. Williams, 504 U.S. 36 (1992) . . . . 17
Virginia Bankshares, Inc. v. Sandberg, 501 U.S.
1083 (1991) . . . . 17
Wachtel v. OTS, 982 F.2d 581 (D.C. Cir. 1993) . . . . 6, 16, 17

Statutes:

Federal Deposit Insurance Act, 12 U.S.C. 1811 et
seq.:
8,12 U.S.C. 1818 . . . . 8, 9, 18
8(b), 12 U.S.C. 1818(b) . . . . 2, 6, 10, 11, 12, 18, 
19, 20, 22
8(b) (1),12 U.S.C. 1818(b) (1) . . . . 2, 6,  9, 15, 17, 18
8(b) (6),12 U.S.C. 1818 (b) (6) . . . . passim
8(b) (6) (A), 12 U.S.C. 1818(b) (6) (A) . . . . 14,17,
20, 21
8(b) (6) (A) (i), 12 U.S.C. l818(b) (6) (A)
(I) . . . . 5, 6, 8, 13, 19
8(b) (6) (F), 12 U.S.C. 1818(b) (6) (F) . . . . 16 
8(h) (2),12 U.S.C. 1818(h) (2) . . . . 22      
Financial Institutions Reform, Recovery, and En-
forcement Act of 1989, 12 U.S.C. 1811 note . . . . 12 
National Bank Act, 12 U.S.C. 93 . . . . 15
12 U.S.C. 1828 (o) . . . . 19
12 U.S.C. 1828 (p) . . . . 19
12 U.S.C. 3305 (b) . . . . 19
12 U.S.C. 4803 (a) (2) . . . . 19
12 U.S.C. 1831o (e) (2) (C) (ii) . . . . 23
12 U.S.C. 1831o (e) (2) (C) (ii) (I) . . . . 23
12 U.S.C. 1831o (e) (2) (E) . . . . 23
12 U.S.C. 1831o (f) . . . . 23
Miscellaneous:
Black's Law Dictionary (6th ed. 1990) . . . . 10
59 Fed. Reg. (1994):
p. 29, 482 . . . . 19
p. 64, 561 . . . . 19

---------------------------------------- Page Break ----------------------------------------

V

Miscellaneous-Continued:           

Page

60 Fed. Reg. (1995):
p. 32,882 . . . . 19
p. 35,674 . . . . 19
H.R. Conf. Rep. No. 222, 10lst Cong., 1st Sess.
(1989) . . . .  
H.R. Rep. No. 1383, 95th Cong., 2d Sess (1978) . . . . 11, 19 
H.R. Rep. No. 54, 10lst Cong., 1st Sess. Pt. 1
(1989) . . . . 12 
Hearings on H.R. 9086 Before the Subcomm. on
Financial Institutions Supervision, Regulation
and Insurance of the House Comm. on Banking,
Finance and Urban Affairs, 95th Cong., 1st Sess.
Pt. 4 (1977) . . . . 11 
Hunter, Modern Law of Contracts (1993) . . . . 15 
Restatement of Restitution (1937) . . . . 10, 14
Restatement (Second) of Contracts (1981) . . . . 14
S. Rep. No. 19, 10lst Cong., 1st Sess. (1989) . . . . 12
S. Rep. No  323, 95th Cong., 1st Sess. (1977 ) . . . . 11

---------------------------------------- Page Break ----------------------------------------

In the Supreme Court of the United States

OCTOBER TERM, 1995

No.

UNITED STATES DEPARTMENT OF THE TREASURY,
OFFICE OF THRIFT SUPERVISION, PETITIONER

v.

ROBERT D. RAPAPORT

ON PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES' COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

The Solicitor General, on behalf of the United
States Department of the Treasury, Office of Thrift
Supervision, petitions for a writ of certiorari to re-
view the judgment of the United States Court of Ap-
peals for the District of Columbia Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra,
1a-25a) is reported at 59 F.3d 212. The opinion of
the Acting Director of the Office of Thrift Super-
vision (App., infra, 26a-86a) is unreported.

JURISDICTION

The judgment of the court of appeals was entered
on July 11, 1995. On October 4, 1995, the Chief Jus-
          
(1)

---------------------------------------- Page Break ----------------------------------------

2
             
tice extended the time within which to file a petition
for a writ of certiorari to and including November 8,
1995. The jurisdiction of this Court is invoked under
28 U.S.C. 1254 (1).
   
STATUTORY PROVISION INVOLVED

Section 8(b) of the Federal Deposit Insurance Act,
12 U.S.C. 1818(b), provides in pertinent part as
follows :

1818. Termination of Status as Insured De-
pository Institution.

(b) Cease-and-desist proceedings

(1) If, in the opinion of the appropriate Fed-
eral banking agency, any insured depository in-
stitution, depository institution which has insured
deposits, or any institution-affiliated party is en-
gaging or has engaged, or the agency has rea-
sonable cause to believe that the depository insti-
tution or any institution-affiliated party is about
to engage; in an unsafe or unsound practice in
conducting the business of such depository insti-
tution, or is violating or has violated, or the
agency has reasonable cause to believe that the
depository institution or any institution-affiliated
party is about to violate, a law, rule, or regula-
tion, or any condition imposed in writing by the
agency in connection with the granting of any ap-
plication or other request by the depository insti-
tution or any written agreement entered into
with the agency, the agency may issue and serve
upon the depository institution or such party a
notice of charges in respect thereof. The notice
shall contain a statement of the facts constituting
the alleged violation or violations or the unsafe

 ---------------------------------------- Page Break ----------------------------------------

3

or unsound practice or practices, and shall fix a
time and place at which a hearing will be held
to determine whether an order to cease and desist
therefrom should issue against the depository in-
stitution or the institution-affiliated party. Such
hearing shall be fixed for a date not earlier than
thirty days nor alter than sixty days after serv-
ice of such notice unless an earlier or a later date 
is set by the agency at the request of any party so
served. Unless the party or parties so served
shall appear at the hearing personally or by a
duly authorized representative, they shall be
deemed to have consented to the issuance of the
cease-and-desist order. In the event of such con-
sent, or if upon the record made at any such hear-
ing, the agency shall find that any violation or 
unsafe or unsound practice specified in the notice
of charges has been established, the agency may
issue and serve upon the depository institution or
the institution-affiliated party an order to cease 
and desist from any such violation or practice.
Such order may, by provisions which may be 
mandatory or otherwise, require the depository
institution or its institution-affiliated parties to 
cease and desist from the same, and, further, to
take affirmative action to correct the conditions
resulting from any such violation or practice.
* * * * * 

(6) Affirmative action to correct conditions re-
sulting from violations or practices. The author-
ity to issue an order under this subsection and
subsection (c) of this section which requires an
insured depository institution or any institution-
affiliated party to take affirmative action to cor-
rect or remedy any conditions resulting from any
violation or practice with respect to which such
order is issued includes the authority to require 
such depository institution or such party to-

---------------------------------------- Page Break ----------------------------------------
 
4

(A) make restitution or provide reim-
bursement, indemnification, or guarantee
against loss if-
(i) such depository institution or
such party was unjustly enriched in
connection with such violation or prac-
tice; or
(ii) the violation or practice involved
a reckless disregard for the law or any
applicable regulations or prior order of
the appropriate Federal banking agency;
(B) restrict the growth of the institution;
(C) dispose of any loan or asset involved;
(D) rescind agreements or contracts;
(E) employ qualified officers or employ-
ees (who may be subject to approval by the
appropriate Federal banking agency at the
direction of such agency) ; and
(F) take such other action as the bank-
ing agency determines to be appropriate.
*  *  *  *  *
       
STATEMENT

In 1984, a new savings association, Great Life Sav-
ings Association, applied to the Federal Savings and
Loan Insurance Corporation (FSLIC) for federal in-
surance of its depositors' accounts. App., infra, 2a.
The Federal Home Loan Bank Board (FHLBB),
which was the governing body of the FSLIC, ap-
proved Great Life's application. In accordance with
an FHLBB regulation, and as a condition to its ap-
proval, the FHLBB required respondent, who planned
to own approximately 70% of Great Life's stock, to
enter into an agreement with the FSLIC to maintain
Great Life's capital at the minimum levels required by
federal regulations for insured savings associations.

---------------------------------------- Page Break ----------------------------------------

5

Respondent entered into the agreement for a term
of five years. Id. at 2a-3a.
During that five-year period, Great Life's capital
fell below the prescribed minimum level. App., infra,
3a. In November, 1989, the FHLBB's successor, the
Office of Thrift Supervision (OTS), notified respond-
ent of the capital deficiency and asked him to satisfy
his obligation under the agreement. Respondent re-
fused. After repeatedly and unsuccessfully asking
respondent to infuse funds into Great Life, the OTS
placed the institution into receivership in the early
summer of 1990. Ibid.
In July, 1990, the OTS initiated an administrative
proceeding against. respondent, App., infra, 3a. In
April, 1993, an administrative law judge issued a
recommended decision in which he determined that
respondent was liable for violating his agreement to
maintain Great Life's net worth. The Acting Direc-
tor of OTS affirmed the administrative law judge's
conclusion, with certain modifications, and he ordered
respondent to pay more than $1.5 million into the
Great Life receivership estate. Id. at 3a-4a.
The Acting Director concluded that respondent had
failed to honor a written agreement to maintain
Great Life's capital at required levels, and that re-
spondent's failure to do so unjustly enriched him
within the meaning of 12 U S.C. 1818(b) (6)
(A) (i). App., infra, 53a-55a, 65a-67a. Specifically,
the Acting Director found that:

Respondent voluntarily entered into the Agree-
ment to obtain a benefit from the federal gov-
ernment. * * * Respondent did so as a ma-
jority shareholder so that the Association could
commence operations enjoying the benefits of

---------------------------------------- Page Break ----------------------------------------

6

federal insurance. * * * Respondent has been
unjustly enriched by his failure to comply with
the Agreement, by retaining funds or property
that belong to the Association [i.e., the capital
that he refused to infuse pursuant to the Agree-
ment], while the Association received the bene-
fits of deposit insurance.

App., infra, 66a.

The court of appeals granted respondent's petition
for judicial review and set aside the OTS's decision.
App., infra, 1a-25a. The court rejected the Acting
Director's interpretation of the scope of his authority
to order compliance with a net worth maintenance
agreement under Section 1818(b). Instead, the court
assumed that an order to comply with such an agree-
ment by paying money would be an order to take
"affirmative action" under Section 1818(b) (1). Re-
lying on its prior decision in Wachtel v. OTS, 982
F.2d 581 (1993), the court held that

for the OTS to order a party to undertake any
"affirmative action to correct conditions resulting
from violations or practices," it must show
either that the party has been "unjustly enriched"
or that his conduct "involved a reckless disregard
for the law or any applicable regulations or prior
order of [a] Federal banking agency."

App., infra, 9a.

The court then held that Congress's use of the term
"unjustly enriched" in Section 1818(b) (6) (A) (i)
was limited by the historical usage of the term "un-
just enrichment" by common-law courts. Applying
what it regarded as common law principles, the court
concluded that, in order to obtain recovery on an

---------------------------------------- Page Break ----------------------------------------

7

unjust enrichment theory, a banking agency must
show that the party subject to the order received and
retained a benefit that properly belonged to an insti-
tution or to the agency. Id. at lla-12a. It further
ruled that the amount that could be recovered would
equal only the value of the benefit received and re-
tained, not the loss suffered by the affected institu-
tion or agency. Id. at 12a-13a. Thus, with respect to
a net worth maintenance agreement, the court would
measure the recovery by the amount of benefit the
obligor received and retained, rather than by the net
worth deficiency he had agreed to cure. The court
therefore rejected the Acting Director's conclusion
that respondent had been "unjustly enriched" in an
amount equal to the amount that he refused to infuse
into Great Life in accordance with his agreement.
In rejecting the OTS's reading of the statutory
language, the court held that the OTS's interpretation
was not entitled to any deference under Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984), because four banking agencies
share responsibility for administering the same pro-
vision. App., infra, 10a-lla. Judge Rogers wrote
separately to disassociate herself from that holding.
Id. at 20a-25a. Judge Rogers concurred in the court's 
judgment, however, on the ground that "the legisla-
tive history indicates that Congress did not intend
the phrase used in  1818 (b) (6) (A) (i) to encompass
the retention of funds owed under a net worth main-
tenance agreement." Id. at 24a.

---------------------------------------- Page Break ----------------------------------------
         
8

REASONS FOR GRANTING THE PETITION
The decision below is erroneous, and it conflicts
with decisions of other courts of appeals. Because
any person whom a federal banking agency orders to
comply with a written agreement may seek review of
that order in the Court of Appeals for the District of
Columbia Circuit, the government will have no prac-
tical opportunity to litigate the relevant issues fur-
ther in other courts. Nor would postponing review
materially aid this Court in its consideration and
resolution of the questions presented, In addition,
the court of appeals' decision stands as a serious ob-
stacle to the efficient administrative enforcement of
written agreements between federal banking authori-
ties and the institutions and individuals that Congress
has charged them with regulating.
1. The court of appeals has held, in effect, that
Congress did not give the federal banking agencies
to which 12 U.S.C. 1818 applies administrative
authority to enforce written agreements entered into
between those agencies and financial institution "in-
siders" as a condition for the grant of a federal
regulatory benefit (here, the provision of federal
deposit insurance). That decision is wrong, both
because the court improperly refused to defer to peti-
tioner's reasonable interpretation of the term "un-
justly enriched" as it is used in Section 1818 (b)
(6) (A) (i), and because the proper statutory analy-
sis supporting petitioner's authority to enter the
order should not have required resort to that provi-
sion in the first place.
a. Section 1818 (b) (1) confers on each of the four
federal banking agencies the authority to issue cease-
and-desist orders under various circumstances. As
relevant here, an agency may issue such an order,

---------------------------------------- Page Break ----------------------------------------

9

after an administrative hearing, to any "institution-
affiliated party" that it finds has violated "any condi-
tion imposed in writing by the agency in connection
with the granting of any application or other request
by the depository institution or any written agreement
entered into with the agency." 12 U.S.C. 1818 (b) (1).
The order may require the affiliated party "to cease
and desist from any such violation." Ibid. It may,
in addition, order the party "to take affirmative ac-
tion to correct the conditions resulting from any such
violation." Ibid. Section 1818 (b) (6) goes on to
specify that the authority to require "affirmative
action"
includes the authority to require * * * such
party  to-
(A) make restitution or provide reim-
bursement, indemnification, or guarantee
against loss if-
(i) such * * * party was unjustly
enriched in connection with such vio-
lation * * *; or
(ii) the violation * * * involved a
reckless disregard for the law or any
applicable regulations or prior order
of the appropriate Federal banking
agency; 
*  *  *  *  *
and
(F) take such other action as the bank-
ing agency determines to be appropriate.
The Federal Deposit Insurance Act, of which Sec-
tion 1818 is a part, does not further define the term
"unjustly enriched" as it is used in Section 1818
(b) (6). The Acting Director of the Office of Thrift

---------------------------------------- Page Break ----------------------------------------
         
10

Supervision concluded that the facts of this ease, in
which respondent (i) signed a written agreement to
maintain the capital of his institution, as an express
condition for the approval of the institution's initial
application for federal deposit insurance, and (ii )
failed to honor that agreement according to its
terms, thereby (iii) obtaining the benefit of deposit
insurance for his institution and retaining funds that
he had agreed to invest, when needed, to support the
institution, fell within the scope of this statutory lan-
guage. App., infra, 65a-67a. That conclusion is rea-
sonable, and it was entitled to deference from the
court of appeals.
The doctrine of unjust enrichment connotes situa-
tions where a person "has and retains money or bene-
fits which in justice and equity belong to another."
Black's Law Dictionary 1535 (6th ed. 1990) ; see also,
e.g., Restatement of Restitution 1 (1937). Against
that background, it is not difficult to conclude that
the statutory term "unjustly enriched" could apply to
an individual like respondent, who has retained funds
that he bad explicitly agreed to use to support his
institution, leaving the federal deposit insurance sys-
tem (and, ultimately, the taxpayers) with a liability
that was originally undertaken only in reliance on
that agreement. That interpretation is, moreover
consonant with the history and purposes of Section
1818(b).
Section 1818 (b) (6) is a small part of a compre-
hensive and specialized legal and administrative
framework designed to give federal regulators the
authority they need to maintain the safety and
soundness of many of the nation's financial institu-
tions and the federal deposit insurance system.

---------------------------------------- Page Break ----------------------------------------
         
11             

When Congress first amended Section 1818 (b) to
permit the issuance of cease-and-desist orders to
institution-affiliated parties, the House committee re-
port made clear that Congress expected federal
regulators to use their powers "vigorously * * *
to make the nation's financial institutions func-
ion properly." H.R. Rep, No. 1383, 95th Cong.,
2d Sess. 17 (1978): The Senate report noted that
the new authority might be used, "[f] or example,
* * * where a dominant and controlling individual
is responsible for unsafe or unsound practices and
relief cannot reasonably be obtained by bringing an
action against the institution [, or] * * * where an
insider has unjustly enriched himself at the expense
of the institution." S. Rep. No. 323, 95th Cong.,
1st Sess. 7 (1977).
Thus, Congress clearly intended to provide the au-
thority to proceed administratively against affiliated
individuals who were harming or had harmed the
institution, in circumstances in which an order en-
tered against the institution itself would not provide
an effective remedy. That principle applies to this
case. 
In 1986, the Seventh Circuit held that Section 1818
(b), as then in effect, did not permit the Comptroller
of the Currency to proceed administratively to order
                                        
___________________(footnotes)

1 The FHLBB, in particular, had sought authority to issue
cease-and-desist orders to institution-affiliated parties to ob-
tain restitution for institutions in cases where a "wrongdoing
officer or director * * * maybe acting against the best interests
of the institution." Hearings on H.R. 9086 Before the
Subcomm. on Financial Institutions Supervision, Regulation
and Insurance of the House Comm. on Banking, Finance and
Urban Affairs, 95th Cong., 1st Sess. Pt. 4, at 2305 (1977);
see also id. at 2303-2908.

---------------------------------------- Page Break ----------------------------------------
         
12

individual bank directors to reimburse a bank for
losses caused by their repeated approval of loans in
excess of statutory limitations. Larimore v. Comp-
troller of the Currency, 789 F.2d 1244 (1986) (en
bane). The court held that, with the possible excep-
tion of situations in which a bank insider had been
"unjustly enriched," regulators could attempt to im-
pose personal monetary liability only through judicial
proceedings. Id. at 1256.
Three years later, at the height of the savings and
loan crisis (and as respondent's institution was be-
coming insolvent ), Congress enacted the Financial
Institutions Reform, Recovery, and Enforcement Act
of 1989 (FIRREA). In that Act, Congress sought
"[t]o strengthen the enforcement powers of Federal
regulators," and in particular to clarify and expand
the banking agencies' authority to impose affirmative
relief obligations on institutional insiders. 12 U.S.C.
1811 note; see also H.R. Conf. Rep. No. 222, 10lst
Cong., 1st Sess. 393 (1989); H.R. Rep. No. 54, 10lst
Cong., 1st Sess. Pt. 1, at 307-308, 310-311, 464
(1989).
FIRREA added Section 1818(b) (6), in order to
"overrule []" Larimore and to clarify the banking
agencies' " authority to issue an order requiring per-
sons and institutions to take affirmative action to
correct certain conditions." See H.R. Rep. No. 54,
Pt. I, at 392, 468; S. Rep. No. 19, 10lst Cong., 1st
Sess. 39-40 (1989). The new statutory language evi-
dences an intention to grant regulators broad discre-
tion in fashioning appropriate relief. See 12 U.S.C.
1818 (b) (6) (allowing orders to "make restitution or
provide reimbursement, indemnification, or guarantee
against loss," to take various other specific actions,

---------------------------------------- Page Break ----------------------------------------
          
13

and to "take such other action as the banking agency
determines to be appropriate"). The OTS relied in
part on that broad language in issuing the order
at issue in this case. See, e.g., App., infra, 53a, 55a.
The court of appeals set aside that order on the
ground that respondent had not been "unjustly en-
riched," within the meaning of Section 1818(b) (6)
(A) (i), by his failure to comply with his capital
maintenance agreement. App., infra, 9a-14a. The
court held that `` ['u]njust enrichment' ] is a term of
art at common law and we must presume that the
Congress used it as such, mutatis mutandis, when it
imported the term into the field of bank regulation."
Id. at 11a. It went on to hold that, at common law,
unjust enrichment is measured by the defendant's
gain, rather than by the plaintiff's loss, and it con-
cluded that the amount that the OTS ordered re-
spondent to pay was linked, not to any benefit he had
received, but to losses suffered by the agency. Id. at
13a, Second, citing principles relating to the weigh-
ing of equities, the court observed that any benefit
respondent had received had, "for reasons not at
tributable to [respondent] himself," become valueless
by the time that the OTS had asked him to comply
with his agreement, Ibid.
We believe that the court placed undue reliance on
its view of the technical common-law meaning of "un-
just enrichment." While the traditional legal usage
of that term is relevant to the interpretation of the
similar phrase "unjustly enriched" that is used in
Section 1818 (b) (6), see, e.g., Morissette v. United
States, 342 U.S. 246, 263 (1952), the court took in-
sufficient notice of its own acknowledgment (App.,
infra, Ila) that statutory terms must. be interpreted
Mutatis mutandis." See Moskal v, United States,

---------------------------------------- Page Break ----------------------------------------
         
14

498 U.S. 103, 117 (1990); Taylor v. United States,
495 Us. 575,593 (1990).
In this case, Congress used the term "unjustly
enriched" in the context of an enforcement provision
clearly meant to afford federal regulators broad au-
thority to respond promptly to situations in which
bank insiders take improper actions that shift bene-
fits to themselves and risks or losses to their institu-
tions, or to the federal fist. Section 1818(b) (6)
(A) thus authorizes orders to "make restitution or
provide reimbursement, indemnification, or guaran-
tee against loss." While "restitution," and perhaps
"reimbursement," are terms commonly associated
with common-law "unjust enrichment," the same is
not true of "guarantee against loss." Thus, Congress
seemingly provided for remedies significantly broader
than those available for "unjust enrichment" at com-
mon law .2 Similarly, it seems most likely that Con-

___________________(footnotes)

2 The OTS's decision in this case comports with the thrust
of traditional equitable principles. Respondent obtained de-
posit insurance for his institution, and hence received the
performance that he had sought from the government when
he agreed to maintain the institution's capital. When the time
came for his performance, however, he reneged on his part
of the bargain. Traditionally, a party that breaches an agree-
ment after receiving performance has been "unjustly en-
riched." See, e.g., Restatement (Second) of Contracts 344,
cmt. a (1981); Restatement of Restitution $3107-108 (1937).
Furthermore, if restitution is otherwise appropriate, the fact
that a benefit once received is lost through the failure of a
third party (here, the institution) does not lessen the duty
to make restitution. See Restatement (Second) of Contracts
370, cmt. a, illus. 3 (1981). Moreover, while the breaching
party's gain may not always equate to the loss suffered by
the injured party, the breaching party may be deemed to
have received a gain equivalent to the amount he saved as

---------------------------------------- Page Break ----------------------------------------

15

gress intended the term "unjustly enriched" to be
given a meaning sensibly adapted to regulatory set-
ting in which it was used. 3.
b. In any event, the outcome of this case should
not have turned on the interpretation of the term
"unjustly enriched" in Section 1818(b) (6). Section
1818 (b) (1) provides federal banking agencies with
the general authority to issue orders requiring that
institution-affiliated parties "cease-and-desist from
any * * * violation" of, among other things, "any
condition imposed in writing by the agency in
connection with the granting of any application or
other request by the depository institution," or "any
written agreement entered into with the agency." In
this case, respondent entered into a written agree-
ment, as a condition for his institution receiving de-
posit insurance, and then violated that agreement.
The OTS ordered him to cease and desist from that
violation. App., infra, 84a.
The agreement in question in this case was one to
pay money under defined circumstances, which in
                                                     
___________________(footnotes)

a result of not satisfying his obligation. See Ocor Products
Corp. V. Walt Disney Productions, 682 F. Supp. 90, 95
(D.N.H. 1988); Hunter, Modern Law of Contracts Par. 9.02[3]
(1993) .
3 The court of appeals gave considerable weight to Lari-
more's discussion of the relationship between Section 1818(b)
and 12 U.S.C. 93, see App., infra, 14a-19a, even suggesting
(id. at 18a-19a) that the "remedy of choice" in this case
would be a suit in district court under Section 93. The court's
emphasis is puzzling, first, because Larimore did not involve
a written agreement, and second, because neither Section 93
(which applies exclusively to certain actions brought by the
Comptroller of the Currency) nor any other provision creates
a specific cause of action for banking agencies to seek redress
for violations of regulatory agreements.

---------------------------------------- Page Break ----------------------------------------

16

fact came to pass. The cease-and-desist order requir-
ing specific performance of that agreement was there-
fore an order to pay money. The validity of that order
does not depend on the agency's authority, under the
last sentence of subsection (b) (1), to order a party
"further, to take affirmative action to correct the
conditions resulting from any * * * violation." Nor
does it depend on the interpretation of subsection
(b) (6), which relates exclusively to orders for such
"further * * * affirmative action." Those provisions
merely supplement the agency's basic authority to
order an institution or its insiders to cease and desist
from violating a written agreement they have entered
into with the agency; and it is that basic authority
that most directly supports the order issued to respond-
ent in this case. Cf. Bowen v. Massachusetts, 487
U.S. 879, 893-901 (1988) (distinguishing specific
relief requiring payment of money from "money
damages" ). 4.
The OTS's decision in this case considered sepa-
rately whether respondent had violated his agreement
and could be ordered to cease and desist from that
violation ( App., infra, 53a-55a), and whether he had
been "unjustly enriched" by the violation (id. at 65a-
67a). The order entered against respondent was
similarly stated both in terms of an order to cease
and desist, and in terms of an order to pay a specific

___________________(footnotes)

4 Alternatively, it would also be possible to conclude that
ordering a payment is an order for "affirmative action,"
but that the provisions of Section 1818(b) (6) are exemplary,
and were not intended to impose inflexible limits on the per-
missible terms of any order otherwise proper under subset.
tion (b) (I). See especially 12 U.S.C. 1818 (b) (6) (F); but
see Wachtel V. OTS, 982 F.2d 581, 585 (D.C. Cir. 1993).

---------------------------------------- Page Break ----------------------------------------

17

amount. Id. at 84a. The D.C. Circuit, however, had
explicitly rejected, in the earlier case of Wachtel v.
OTS, 982 F.2d 581, 586 (1993), any argument
that an order to comply with monetary obligations
under a net worth maintenance agreement could be
entered under the authority of subsection (b) (1),
without any need to rely on the specific provisions of
subsection (b) (6). See note 4, supra. The OTS has
never conceded the correctness of Wachtel's holding
on that point. There would, however, have been little
point in raising the issue below in light of Wachtel,
cf. Gov't C.A. Br. 35-37 (distinguishing Wachtel).
Indeed, the court explicitly reaffirmed Wachtel's hold-
ing in its opinion in this case. App., infra, 9a. In
these circumstances, the question of the proper inter-
pretation of subsection (b) (1)'s basic "cease-and-
desist" authority is properly presented in this case.
See, e.g., United States v. Williams, 504 U.S. 36, 40-
45 (1992) ; Virginia Bankshares, Inc. v. Sandberg,
501 U.S. 1083, 1099 n.8 (1991); Stevens v. Depart-
ment of Treasury, 500 U.S. 1, 8 (1991 ). 5.                    

___________________(footnotes)

5 This Court has traditionally refused to affirm an agency
order on the ground that the agency could have entered it on
the basis of different policy grounds from those articulated by
the agency, or on any discretionary ground if the agency's
stated rationale was that its action was legally compelled. See,
e.g., SEC V. Chenery Corp., 318 U.S. 80, 87, 92-95 (1943).
That policy, which is intended to safeguard the exercise of
administrative discretion, is not involved in this case. The
Court could properly affirm the OTS's order on the ground
that it was never required to prove unjust enrichment, because
that result would merely require the agency to prove less than
it was prepared to prove (on its view of the law) in order to
support an order that it clearly wished (and still wishes) to
issue. Alternatively, the Court might choose to clarify the

---------------------------------------- Page Break ----------------------------------------
         
18

c. The court of appeals should, in any event, have
deferred to the OTS's permissible interpretation of
the term "unjustly enriched" in  1818(b) (6) (A) (i),
a provision that is intimately related to the agency's
discharge of duties imposed on it by Congress. See,
e.g., Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 854 (1984). Instead, the
court held that it "owe[d] no such deference to
the OTS's interpretation of 1818 because the agency
shares responsibility for the administration of the
statute with at least three other agencies." App.,
infra, 10a. In the court's view, according deference
to any one of those agencies in a particular case
would "lay the groundwork for a regulatory regime
in which either the same statute is interpreted differ-
ently by the several agencies or the one agency that
happens to reach the courthouse first is allowed to
fix the meaning of the text for all." Ibid.
As Judge Rogers pointed out in her concurrence
(App., infra, 20a-25a), that analysis is "too facile."
Id. at 23a. To. begin with, in this case there is no
evidence that the relevant agencies have adopted
diverging interpretations of the provision in question.
Section 1818 (b) is an enforcement statute shared
by four closely related agencies, which work closely
together in administering federal banking laws.' In-

___________________(footnotes)

legal requirements of Section 1818 (b) as a whole, and then
remand to the agency for whatever further proceedings might
he deemed appropriate.
6 The Comptroller of the Currency and the Director of the
OTS sit on the board of the FDIC, in which capacity they
make agency decisions in proceedings under Section 1818.
The banking agencies also coordinate many of their activities.
In 1978, for instance, Congress created the Financial Institu-

---------------------------------------- Page Break ----------------------------------------

19

deed, three of the agencies have concluded in common
that monetary relief under Section 1818 (b) may
properly be measured by the loss suffered by an
affected institution. See Cavallari v. Office of the
Comptroller of the Currency, 57 F.3d 137, 144 (2d
Cir. 1995); Simpson v. OTS, 29 F.3d 1418, 1425-1426
(9th Cir. 1994); In re Palmer, FDIC Enforcement
Decisions & Orders, Adjudicated Decisions, Vol. 1,
A-1808.1O (1991). 7.
The court's decision not to defer to the OTS's inter-
pretation of Section 1818 apparently depends on the
fact that Congress chose to consolidate the enforce-
ment provisions applicable to the four banking
agencies, rather than to adopt separate but identical
statutes for use by each. That result makes little
sense. Furthermore, by refusing to give deference
to any one of those agencies, on the theory that there
might be conflicting views, the court has effectively
deprived itself-as well as Congress and the public-
of the benefit of all banking agency expertise, and

___________________(footnotes)

tions Examinations Council, which "provides a mechanism
which can be used to provide coordination and cooperation
among the agencies." H.R. Rep. No. 1383, supra, at 24; see
also, e.g., 12 U.S.C. 3305(b); 12 U.S.C. 1828(o) (banking
agencies to adopt certain uniform regulations); 12 U.S.C.
1828 (p) (agencies to consult concerning capital standards);
12 U.S.C. 4803(a) (2) (agencies to work jointly to achieve
uniform regulations and guidelines implementing common
statutory or supervisory policies); 60 Fed. Reg. 35,674 (1995);
60 Fed. Reg. 32,882 (1995); 59 Fed. Reg. 64,561 (1994);
59 Fed. Reg. 29,482 (1994).
7 We are, in addition, informed by counsel for the Federal
Reserve Board that the Board views the facts in this case as
meeting the requirements of Section 1818(b) (6) (A) (i).

---------------------------------------- Page Break ----------------------------------------
         
20

assumed a de novo review function that this Court
has made clear is inappropriate in the face of even
merely "permissible" agency statutory interpreta-
tions. Chevron, 467 U.S. at 854. The court's decision
on this point also warrants review and correction by
this Court.
2. The decision of the court of appeals in this case
conflicts with the decisions of other courts of appeals.
In Akin v. OTS, 950 F.2d 1180, 1184 (1992), the
Fifth Circuit concluded that "[r]ead in its entirety,
[FIRREA] manifests a purpose of granting broad
authority to financial institution regulators. The
statute suggests that unjust enrichment has a broader
connotation than in traditional contract law." On
that basis, Akin required a bank insider to satisfy
his obligations under a net worth maintenance agree-
ment. The court affirmed an order in which the OTS
required payment of the amount the insider had
failed to pay under his agreement. Unlike the deci-
sion below, therefore, Akin construed Section 1818
(b) (6) in a manner that fulfills Congress' intention
that the statute be read broadly to achieve the pur-
pose of enhancing safety and soundness and protect-
ing the federal insurance. funds.
Similarly, in Simpson v. OTS, supra, which in-
volved an award of restitution for reckless disregard
of the law under Section 1818(b) (6) (A) (ii), the
Ninth Circuit affirmed an order that measured re-
covery by the loss caused to an institution by an
insider's misconduct, not by measurable benefits con-
ferred on or retained by the insider. See also Caval-
lari  v. Office of the Comptroller of the Currency, 57
F.3d at 144-145 (construing Section 1818(b) (6) (A),

---------------------------------------- Page Break ----------------------------------------

21

and remanding for computation of the loss suffered
by the institution at issue). While neither Simpson
nor Cavallari involved a net worth maintenance agree-
ment, and neither interpreted the term "unjustly
enriched," both decisions support a different and con-
siderably more sensible construction of the banking
agencies' authority to order remedial payments under
subsection (b) (6) (A) than the court below was
willing to adopt. 8.
Finally, the court of appeals' decision refusing to
accord Chevron deference conflicts with Seidman  v.
OTS, 37 F.3d 911, 9.24- (3d Cir. 1994), Simpson, 29
F.3d at 1425, and Akin, 950 F.2d at 1185. All of
those cases, while not specifically discussing the issue
of multiple administration of a single statute, de-
ferred to OTS's interpretation of section 1818(b).
Similarly, Rapp v. OTS, 52 F.3d 1510, 1518 (l0th,
Cir. 1995), and Oberstar v. FDIC, 987 F.2d 494, 501
(8th Cir. 1993), recognized that deference was due
to the banking agencies' interpretations of another
section of the FDIA that is also subject to adminis-
tration by more than one banking agency. 9.

___________________(footnotes)

8 If, as Simpson and Cavallari implicitly hold, Congress
did not adopt the common law concept of "restitution" as a
strict limit on the monetary relief available under subsection
(b) (6) (A), then it would be inconsistent to impose such a
definitional straitjacket on the related statutory phrase "un-
justly enriched." Although the court of appeals did not dis-
cuss these cases, it attempted to distinguish Akin, by express-
ing "no view on the Fifth Circuit's implicit conclusion that
once a party has been unjustly enriched, he may be held liable
for the institution's loss, i.e., for an amount in excess of his
own enrichment." App., infra, 17a.
9 But cf. 1185 Ave. of Ams. Ass'n V. RTC, 22 F.3d 494,
497 (2d Cir. 1994) (less than full deference due to agency

---------------------------------------- Page Break ----------------------------------------
         
22

These conflicting decisions show the existence of
a serious issue concerning the correctness of the
decision below. Under Section 1818 (h) (2), however,
any party to whom an order is issued under Section
1818 (b) may seek review in the D.C. Circuit. Absent
review, therefore, the decision below is final in im-
port and nationwide in effect. That observation both
underscores the importance of review to the banking
agencies, and indicates that there is no reason to
delay review in order to await further development
of the issues in the lower courts.
3. The decision below in this case imposes substan-
tial and unjustified limits cm the ability of federal
banking agencies to order the payment of monetary
relief in administrative proceedings. Specifically, it
precludes a federal banking agency from issuing a
cease-and-desist order requiring an institution-affili-
ated party that has violated a regulatory condition or
written agreement to make a cash payment-even if
that payment is the precise performance that was
bargained for under the agreement-unless the agency
can show, not only the violation, but that the wrong-
doing insider either was "unjustly enriched" in a
strict common-law sense, or acted with "reckless dis-
regard" for the law, a regulation, or a prior agency
order. Further, even where such an order is based
on a finding of unjust enrichment, relief ordered
would evidently be limited by the decision below to
the value of some readily quantifiable benefit that the
insider could be shown to have received and retained,
without any regard either to the insider's breached
commitments or to losses sustained by the institution

___________________(footnotes)

interpretation of a different provision of the FDIA where
more than one agency administers statute).

---------------------------------------- Page Break ----------------------------------------
         
23

or the federal deposit insurance funds. Those results
are neither sensible nor just.
With specific regard to net worth maintenance
agreements of the sort that respondent signed and
breached, the OTS estimates that there are more than
150 such agreements outstanding, of which more than
50 involve institutions that are in receivership. 10.
The decision below therefore directly affects a sub-
stantial number of existing agreements, many of
which are in default.
In addition, the decision raises serious questions
about the banking agencies' ability to effectuate the
policy mandated by the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA), of
requiring a holding company to assist the recapital-
ization of its financial institution subsidiary if that
institution suffers a deficiency in its capital. See 12
U.S.C. 1831o(e) (2) (C) (ii), 1831o(e) (2) (E). Un-
der FDICIA, when an insured depository institution
becomes undercapitalized, it must submit a plan for
restoring its capital, and its holding company must
"guarantee] that the institution will comply with
the plan." 12 U.S.C. 1831o(e) (2) (C) (ii) (I). If the
holding company fails to provide the required guar-
antee, the appropriate banking agency is authorized to
take a number of supervisory actions to reduce the
risks faced by the federal insurance funds. See 12
U.S.C. 1831o (f ). The statute makes no specific pro-
vision for the enforcement of the holding company

___________________(footnotes)

10 We are informed that there are approximately 1,450 in-
stitutions subject to the OTS's jurisdiction. The OTS informs
us that it is not presently seeking to obtain new net worth
maintenance agreements. See App., infra 63a A requirement
for such agreements might be imposed again, however, should
industry conditions or other circumstances change.

---------------------------------------- Page Break ----------------------------------------
         
24

guarantee, leaving it to be enforced in the same man-
ner as any other written agreement. The decision
below renders the prospects for such enforcement
extremely problematic.
The effect of the decision below also extends be-
yond its impact on net worth maintenance agreements.
Under the court of appeals' reasoning, a banking

agency could not issue an administrative order re-
quiring reimbursement or a guarantee against possi-
ble future losses in any ease where an insider's breach
of a written agreement with the agency concerning
an unsafe or unsound practice not specifically pro-
hibited by statute, regulation or prior order causes
damage to the institution or presents the possibility
of future losses, so long as the insider received no
readily quantifiable benefit from the agency or the
institution. The decision therefore not only severely
undercuts the OTS's ability to obtain compliance with
net worth maintenance agreements, it also has serious
adverse implications for the ability of all federal bank
regulatory agencies effectively to discharge their
statutory responsibilities.

---------------------------------------- Page Break ----------------------------------------

25

CONCLUSION

The petition for a writ of certiorari should be
granted.

Respectfully submitted.

CAROLYN J. BUCK
Chief Counsel

THOMAS J. SEGAL
Deputy Chief Counsel

AARON B. KAHN
Principal Litigation Counsel
Office of Thrift Supervision

DREW S. DAYS, III
Solicitor General

FRANK W. HUNGER
Assistant Attorney General

PAUL BENDER
Deputy Solicitor General

DOUGLAS N. LETTER
JACOB M. LEWIS
Attorneys

NOVEMBER 1995            
 
---------------------------------------- Page Break ----------------------------------------

APPENDIX A

UNITED STATES COURT OF APPEALS
DISTRICT OF COLUMBIA CIRCUIT

No. 93-1811

ROBERT D. RAPAPORT, PETITIONER

v.

UNITED STATES DEPARTMENT OF THE TREASURY,
OFFICE OF THRIFT SUPERVISION, RESPONDENT

Argued Jan. 31, 1995
Decided July 11,1995

Before GINSBURG, RANDOLPH, and ROGERS,
Circuit Judges.
Opinion for the Court filed by Circuit Judge
GINSBURG.
Opinion concurring in part and concurring in the
judgment filed by Circuit Judge ROGERS.

GINSBURG, Circuit Judge:

Robert D. Rapaport was the majority shareholder
of a savings and loan association that failed. There- 

(1a)

---------------------------------------- Page Break ----------------------------------------

2a

after the Office of Thrift Supervision, as successor to
the Federal Savings and Loan Insurance Corporation,
ordered him to pay approximately 1.5 million pur-
suant to his agreement personally to maintain the
capital in the institution at no less than the minimum
required by regulation. We hold that because the
OTS has not shown that Rapaport was "unjustly en-
riched," it may not enforce the agreement against
him in an administrative (as opposed to judicial)
proceeding. Accordingly, we grant Rapaport's peti-
tion for review and set aside the agency's order.

I. Background

Great Life Savings Association of Sunrise, Florida,
a state-chartered institution, applied to the FSLIC
for deposit insurance in April 1984. While Great
Life's application was pending, the Federal Home
Loan Bank Board-the governing body of the FSLIC-
promulgated a regulation requiring that any individ-
ual who owned 25% or more of the stock of a newly
insured savings association "personally guarantee the
maintenance of the association's net worth at the
regulatorily required level." See 49 Fed.Reg. 41237,
41244 (Oct. 22, 1984), codified at 12 C.F.R.  571.6
(c) (4) (i) (1985). Accordingly, when the FHLBB
approved Great Life's application, it did so upon the
condition that Rapaport, who planned to purchase
74% of the Great Life's shares, enter into a Net
Worth Maintenance Agreement with the FSLIC.
Rapaport ultimately purchased 69.9% of Great
Life's stock. In March 1985 he entered into a five-
year Agreement that provided:
[I]n consideration of the FSLIC granting in-
surance of accounts to the Association, the Ac-

---------------------------------------- Page Break ----------------------------------------

3a

quiror agrees . . . pursuant to the requirements
of 12 C.F.R.  571.6(4), or any successor reg-
ulation thereto, to maintain the Association's net
worth in compliance with the Net Worth Re-
quirement applicable to the Association, com-
puted in accordance with 12 C.F.R. 563.13,
or any successor regulation then in effect.

The FHLBB approved Great Life's insurance applica-
tion and the thrift opened for business in May 1985.

Owing primarily to the number of nonperforming
commercial real estate loans on its books, Great Life,
like many thrift institutions in the late 1980s, began
to experience capital deficiencies. In November 1989
the OTS notified Rapaport. that Great Life's capital
was deficient by $152,000 and asked him to contribute
$106,248 (69.9% of the total) pursuant to the Agree-
ment. Rapaport responded that he was expending
"great effort''-but not by actually contributing any
capital-to improve Great Life's financial health.
After further investigation, the OTS determined that
Great Life's capital deficiency amounted to some $3.5
million as of December 31, 1989. In June 1990 the
Resolution Trust Corporation was appointed receiver
of Great Life, which has since been liquidated.
The OTS began an administrative proceeding
against Rapaport in July 1990. In April 1993. an
Administrative Law Judge found that: (1) Rapa-
port's role in the activities of Great Life "was limited
solely to that of a stockholder"; (2) Rapaport was
"unjustly enriched within the meaning of [12 U.S.C.
1818 (b) (6) (A) (i)]" because he received the ben-
efit of Great Life's having deposit insurance while
retaining the capital he was supposed to contribute

---------------------------------------- Page Break ----------------------------------------
         
4a

under the Agreement; and (3) under the Agreement
Rapaport was obliged to contribute $1,946,000 to help
cover Great Life's capital deficiency.
The Acting Director of the OTS affirmed the ALJ's
decision, though he corrected it insofar as the ALJ
had suggested that the benefit of insurance received
by Great Life, rather than Rapaport's retention of
what the Agreement allegedly required him to pay,
was the basis for holding that Rapaport had been
"unjustly enriched." (He also reduced Rapaport's
liability to $1,536,675 based upon a revised valuation
of one of Great Life's loans.) Like the ALJ, the
Acting Director based his decision that Rapaport was
liable for his unjust enrichment upon Rapaport's per-
sonal responsibility, as a stockholder, for Great Life's
capital shortfall; he did not rely upon any role that
Rapaport might have played in the management of
Great Life.
Before this court Rapaport faults the Acting Di-
rector's decision in four respects. First, he claims
that the OTS does not have statutory authority to
bring this action against him. Instead, he submits
that the Federal Deposit Insurance Corporation-as
the manager of the FSLIC Resolution Fund-is the
only agency (if any) that can pursue a claim based
upon the Agreement. Second, Rapaport claims that
the OTS failed to show that he was "unjustly en-
riched," as required by this court's decision in
Wachtel v. OTS, 982 F.2d 581 (D.C. Cir.1993). If
the court rejects his first two arguments, then Rapa-
port claims, third, that the Agreement expired in
November 1989 when the regulation requiring such
agreements was amended to exclude state-chartered

---------------------------------------- Page Break ----------------------------------------
         
5a

institutions, and he is not responsible for any capital
deficiency occurring thereafter. Finally, Rapaport
claims that the OTS miscalculated Great Life's capi-
tal deficiency because it improperly valued certain
loans.      

II. Analysis

Though we conclude that the OTS does have the
authority administratively to enforce an agreement
which the FSLIC was a party, we also hold that
the OTS failed in this case to make the required
showing that Rapaport was "unjustly enriched." We
therefore set aside the agency's decision without ad-
dressing Rapaport's last two arguments.

A. OTS's Authority to Enforce the Agreement

Rapaport argues that if any federal agency has
the authority to enforce the Agreement, it is the
FDIC rather than the OTS. Section 1818(b) (1) of
12 U.S.C. authorizes "the appropriate Federal bank-
ing agency" to enforce any condition imposed "by the
agency" or any agreement entered into "with the
agency." * The OTS cannot bring this action, accord-

___________________(footnotes)

* 12 U.S.C.  1818(b) (1) provides:
If, in the opinion of the appropriate Federal banking
agency, any insured depository institution, depository
institution which has insured deposits, or any institution-
affiliated party is engaging or has engaged, or the agency
has reasonable cause to believe that the depository insti-
tution or any institution-affiliated party is about to en-
gage, in an unsafe or unsound practice in conducting the
business of such depository institution, or is violating or
has violated, or the agency has reasonable cause to believe
that the depository institution or any institution-affiliated
party is about to violate, a law, rule, or regulation, or any

---------------------------------------- Page Break ----------------------------------------

6a

ing to Rapaport, because it was not "the agency"
that entered into the Agreement, which was with the
FSLIC (as opposed to the FHLBB, the governing
body of the FSLIC). Further, because "all assets
and liabilities of the [FSLIC]" were transferred to
the FSLIC Resolution Fund, see 12 U.S.C. 1821a
(a) (2) (A), and the FSLIC Resolution Fund is man-
aged by the FDIC, he claims that only the FDIC
may proceed against him for any deficiency. See also
CityFed Financial Corp. v. OTS, 58 F.3d 738 (D.C.
Cir.1995) (holding OTS has jurisdiction to enforce
cease and desist order against holding company affil-
iated with failed savings and loan).

___________________(footnotes)

condition imposed in writing by the agency in connection
with the granting of any application or other request by
the depository institution or any written agreement en-
tered into with the agency, the agency may issue and
serve upon the depository institution or such party a
notice of charges in respect thereof. The notice shall
contain a statement of the facts constituting the alleged
violation or violations or the unsafe or unsound practice
or practices, and shall fix a time and place at which a
hearing will be held to determine whether an order to
cease and desist therefrom should issue against the deposi-
tory institution or the institution-affiliated party . . . . 
[I]f upon the record made at any such hearing, the
agency shall find that any violation or unsafe or unsound
practice specified in the notice of charges has been estab-
lished, the agency may issue and serve upon the depository
institution or the institution-affiliated party an order to
cease and desist from any such violation or practice. Such
order may, by provisions which may be mandatory or
otherwise, require the depository institution or its
institution-affiliated parties to cease and desist from the
same, and, further, to take affirmative action to correct
the conditions resulting from any such violation or
practice.

---------------------------------------- Page Break ----------------------------------------
         
7a

Not so. Rapaport entered into the Agreement with
the FSLIC, and when the Congress abolished the
FSLIC and the FHLBB, see Financial Institutions
Reform, Recovery and Enforcement Act of 1989,
Pub.L. No. 101-73, 401(a), 103 Stat. 183 (August
.989) (FIRREA); see also Historical Note at 12
U.S.C.A. 1437 (West Supp.1994), it also passed
savings provisions stating that their abolition would
"not affect the validity of any right, duty, or obliga-
tion" of those agencies. FIRREA 401 (f)-(g). In-
deed, the Congress specifically provided that all "or-
ders, resolutions, determinations, and regulations" of
the FSLIC and of the FHLBB-which would include
the regulations requiring and supporting the Agree-
ment-"shall be enforceable by or against the Direc-
tor of the [OTS], the [FDIC], the Federal Housing
Finance Board, or the [RTC], as the case may be."
FIRREA  401(h). Hence, one of those four agencies
must be able to enforce the Agreement.
Under 12 U.S.C.  1818(b), it is "the appropriate
Federal banking agency"-a defined term-that may
institute proceedings. requiring a party "to [ ] make
restitution or provide reimbursement indemnification,
or guarantee against loss if [that] party was un-
justly enriched in connection with [a] violation [of
`any law, rule, or regulation, or any condition im-
posed in writing by the agency in connection with
the granting of any application or other request'] or
[an unsafe or unsound banking] practice." 12 U.S.C.
1818(b) (l), (6). "Appropriate Federal banking
agency" is defined, "in the case of any savings and
loan association," as "the Director of the [OTS] ."
12 U.S.C.  1813(q) (4) (also noting there may be
more than one appropriate agency per case). The

---------------------------------------- Page Break ----------------------------------------
         
8a

OTS is therefore the appropriate agency to enforce
the Agreement between Rapaport and the FSLIC.
Moreover, the FIRREA provisions dealing with the
powers and duties of the OTS provide specifically
that: "[t]he Director [of the OTS] shall have all
powers which [ ] were vested in the [FHLBB] (in
the Board's capacity as such) . . . and were not [ ]
transferred to the [FDIC or another agency]." 12
U.S.C.  1462a(e). Thus the FIRREA not only gives
the OTS general authority to enforce an agreement
with a savings and loan, it also provides that the
OTS succeeds to certain powers originally vested in
the FHLBB and not transferred elsewhere.
Nonetheless Rapaport points out that the assets of
the FSLIC were transferred to the FSLIC Resolution
Fund, see 12 U.S.C.  1821a(a) (2) (A), and that the
FSLIC Resolution Fund is managed by the FDIC.
From these facts he argues that the OTS is not au-
thorized to enforce the Agreement, and is not in
privity of contract with him. We disagree.
First, regardless of the enforcement authority of
the FSLIC, the Agreement would certainly have been
enforceable by the FHLBB, and as noted above, the
OTS is the presumptive heir (via 1462a(e)) to the
powers of the FHLBB. Rapaport argues that the
phrase "in the Board's capacity as such" in  1462a
(e) somehow precludes the OTS from exercising those
powers held by the FHLBB in its capacity as director
of the FSLIC, but we find no such negative implica-
tion in this affirmative grant of authority. Indeed,
we take  1462a(e) to mean just the opposite: powers
vested in the FHLBB as the governing body of the
FSLIC, including the power to enforce an agreement
such as Rapaport's, may now be exercised by the OTS.

---------------------------------------- Page Break ----------------------------------------

9a

Second, we reject Rapaport's claim that the OTS
is barred from enforcing the Agreement against him
because it is not in privity of contract with him. This
is not a suit for breach of contract and we express
no view upon what would be required if it were; the
OTS is here pursuing an administrative remedy and
need only have some affirmative grant of authority
to. do so. That, as we have seen, it has.

B. Unjust enrichment

In order for the OTS to order a party to under-
take any "affirmative action to correct conditions re-
sulting from violations or practices," it must show
either that the party has been "unjustly enriched"
or that his conduct "involved a reckless disregard for
the law or any applicable regulations or prior order
of [al Federal banking agency." 12 U.S.C. 1818
(b) (6) (A) ; ** see Wachtel V. OTS, 982 F.2d 581,
586 (D.C.Cir.1993). The. OTS's only theory through-

___________________(footnotes)

** 12 U.S.C.  1818(b) (6) provides:
The authority to issue an order under this subsection
. . . which requires an insured depository institution or
any institution-affiliated party to take affirmative action
to correct or remedy any conditions resulting from any
violation or practice with respect to which such order is
issued includes the authority to require such depository
institution or such party to-
(A) make restitution or provide reimbursement, in-
demnification, or guarantee against loss if-  
(i) such depository institution or such party was
unjustly enriched in connection with such violation
or practice; or
(ii) the violation or practice involved a reckless dis-
regard for the law or any applicable regulations or
prior order of the appropriate Federal banking
agency;

---------------------------------------- Page Break ----------------------------------------

10a

out this case has been that Rapaport was "unjustly
enriched," and therefore it must show as much be-
fore it can require him to pay a pro rata share of
Great Life's capital deficiency.
The Acting Director's sole basis for concluding that
Rapaport had, in fact, been unjustly enriched was
simply that Rapaport "retain[ed] funds . . . belong-
ing] to [Great Life]"-i.e., the contested capital
contribution-" while [Great Life] received the bene-
fits of deposit insurance." Rapaport claims that this
is insufficient to make out a case of unjust enrich-
ment within the meaning of  1818(b) (6) (A), and
we agree.
As a preliminary matter, the OTS argues that we
should defer to its construction of 1818 under
Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, 467 U. S., 837, 104 S. Ct. 2778, 81 L. Ed.2d
694 (1984). We have already held in Wachtel
we owe no such deference to the OTS's interpretation
of 1818 because that agency shares responsibility
for the administration of the statute with at least
three other agencies. 982 F.2d at 585. The alterna-
tive would lay the groundwork for a regulatory
regime in which either the same statute is interpreted
differently by the several agencies or the one agency
that happens to reach the courthouse first is allowed
to fix the meaning of the text for all. Neither out-
come is unthinkable, of course but neither has the
OTS suggested any reason to believe that the congres-
sional delegation of administrative authority contem-
plates such peculiar corollaries. Cf. Bowen v. Ameri-
can Hospital Association, 476 U.S. 610, 642 n. 30,
106 S. Ct. 2101, 2120 n. 30, 90 L. Ed.2d 584 (1986)
(refusing to defer to agency's construction of Reha-
bilitation Act because "not the same basis for defer-

---------------------------------------- Page Break ----------------------------------------

11a

ence predicated on expertise" as in Chevron); see also
CF Industries, Inc. v. FERC, 925 F.2d 476, 478 &
n. 1 (D. C. Cir.1991) (dictum implying deference may
be due when all agencies concerned "agree as to the
which of them has exclusive jurisdiction"). Hence,
we proceed de novo.
"Unjust enrichment" is a term of art at common
law and we must presume that the Congress used it
as such, mutatis mutandis, when it imported the term
into the field of bank regulation. Turning to a com-
mentary upon the common law, we learn that the
fundamental characteristic of unjust enrichment is
"that the defendant has been unjustly enriched by
receiving something . . . that properly belongs to the
plaintiff [, thereby] forcing restoration to the plain-
tiff." Dobbs, LAW OF REMEDIES 4.1(2). The law
of Florida is typical: The elements of a cause of ac-
tion based upon unjust enrichment are that: (1) the
plaintiff conferred a benefit upon the defendant; (2)
the defendant accepted and retained the benefit; and
(3) it would be unjust for the defendant not to pay
the plaintiff the value of the benefit. See, e.g., Hill-
man Construction Corp. v. Wainer, 636 So.2d 576,
577 (Fla.App.1994).
The agency's argument that Rapaport was "un-
justly enriched" by his failure to pay the amount he
allegedly owed under the Agreement is deeply flawed,
for its fails to satisfy even the first element of a claim
for unjust enrichment. If Rapaport "benefitted"
from his failure to contribute capital to Great Life-
and that is at best an odd way to describe what hap-
pened-it was not because the OTS or its predecessor
conferred something upon him. Nor did Rapaport
profit from Great Life's continued operation because
of anything that the agency did to shore up the insti-

---------------------------------------- Page Break ----------------------------------------

12a

tution. Rapaport just failed to pay up as allegedly
required by his contract. A breach of contract might
give rise to liability for damages measured by the
loss to the plaintiff, but unjust enrichment simply
does not lie when the plaintiff has not bestowed some
sort of benefit upon the defendant.
At best, the FSLIC conferred an indirect benefit
upon Rapaport in that it allowed him to own more
than 25% of the shares in a federally insured institu-
tion (the direct beneficiary of the Agreement being
Great Life). In other words, Rapaport got the op-
portunity to invest more than otherwise would have
been allowed. (Ultimately, of course, his investment
was worth nothing but Rapaport's opportunity to
invest was presumably of some value ex ante.) Noth-
ing in either the ALJ's or the Acting Director's deci-
sion indicates that Rapaport received any other bene-
fit from the FSLIC or from Great Life (at which he
held no office).
There are two problems with the opportunity-
to-invest-more concept of "benefit," however. First,
it was not advanced in the decision of the OTS.
Second, we doubt whether it would be sufficient in
any event to establish that Rapaport was unjustly
enriched.
Though the decisions of the ALJ and the Acting
Director are somewhat opaque on the nature of the
benefit, we know that they did not consider Rapaport's
opportunity to invest more the benefit that he received
because the OTS has maintained throughout this pro-
ceeding that the amount of the benefit to Rapaport
is the amount that he would have had to contribute
to Great Life had he complied with the Agreement to
the agency's satisfaction. That amount, however,
bears no relation whatever to the value to Rapaport

---------------------------------------- Page Break ----------------------------------------
        
13a

of the FSLIC insuring Great Life's deposits, either
at the outset or at the time of his alleged default.
The $1.5 million Rapaport was allegedly required in
contribute may arguably approximate the amount of
the agency's loss attributable to Rapaport's alleged
breach, but no principle in the law of restitution is
more clear than this: "Restitution is measured by
the defendant's unjust enrichment, not by the plain-
tiff's loss." Dobbs, RESTITUTION at  4.5 (1). The
Acting Director actually paid lip service to this prin-
ciple, but he ignored it in f act when he concluded that
Rapaport was "unjustly enriched" by retaining the
money he allegedly should have paid in under the
Agreement. That is the equivalent of saying that the
defendant must cover the plaintiff's loss, lest the de-
fendant's failure to do so enrich him. The argument
is circular, hardly more than a play upon words.
What makes this case even harder to square with
any recognizable notion of unjust enrichment is that
Rapaport's alleged obligation to contribute more
funds did not even arise until the value of Rapaport's
right to hold stock in excess of 25 percent had be-
come, for reasons not attributable to Rapaport him-
self, little more than the right to lose that much more
money. Whatever the value of the opportunity that
Rapaport received from the OTS. in 1985, he had
neither realized any benefit from nor even retained
it as of late 1989, when the OTS came calling for
more funds; there was by then simply no benefit that
he could be required to disgorge. See RESTATEMENT
OF RESTITUTION 142, Comment a (1937) ("When
events are such that a loss must be suffered by one of
the parties . . . justice does not require that the re-
cipient should bear this loss where he is guilty of no
greater fault than that of the claimant").

---------------------------------------- Page Break ----------------------------------------

14a

In short, the OTS has failed to demonstrate either
that Rapaport was enriched or, if he was, why that
enrichment was unjust. With only the Acting Di-
rector's ipse dixit to support the agency's claim, we
see no reason to conclude that Rapaport was "un-
justly enriched" by his failure to contribute capital
to Great Life.
Even if we were to read the term "unjustly en-
riched" in  1818(b) (6) (A) as having something
other than its ordinary meaning at common law, our
analysis in Wachtel of the history of the statute and
of the related case law would lead us to the same
conclusion. Prior to 1989, the law simply provided
that the appropriate banking agency, after finding an
unsafe or unsound practice or a violation of a law,
rule, regulation, condition, or agreement could:

require [a party] to cease and desist from the
same, and, further, to take affirmative action to
correct the conditions resulting from any such
violation or practice.

12 U.S.C.  1818(b) (1) (1988), The Seventh Cir-
cuit, however, held that this provision did not give
regulators "the authority to impose personal dam-
ages . . . where there is no proof of personal enrich-
ment." Larimore v. Comptroller of the Currency,
789 F.2d 1244, 1252 (7th Cir.1986) (en banc).

In Larimore, the directors of a bank had repeatedly
approved loans in excess of the bank's statutory
lending limit. Id. at 1246-47. The Comptroller ar-
gued that he could impose personal liability upon the
directors in an administrative proceeding held pur-
suant to  1818(b) (1). Id. at 1249. The court began
its analysis by noting that under 12 U.S.C.  93(a)

---------------------------------------- Page Break ----------------------------------------
         
15a

the Comptroller was authorized to collect damages
from a bank director only if the director's liability
was, "determined and adjudged by a proper district
or Territorial court of the United States in a suit
brought by the Comptroller of the Currency." Id. at
1248-49. The court concluded that "[t] o allow the
Comptroller to have the power to assess personal li-
ability and damages against a director [under
1818 (b) (1)] without bringing his action in federal
court would eviscerate the clear Congressional intent
of 12 U.S.C. 93 (a) and would . . . sanction admin-
istrative preemption of the statutory enforcement
scheme designed by Congress.'" Id. at 1252 (quoting
Citizens State Bank of Marshfield, Mo. v. FDIC, 751
F.2d 209,217 (8th Cir.1984)).
The court did allow for an exception, however,
upon the basis of the legislative history of the stat-
ute, "where an insider has unjustly enriched himself
at the expense of the institution." Larimore, 789
F.2d at 1252 (quoting S.Rep. No. 95-323, 95th Cong.,
1st Sess. 7 (1977)). Thus, while the usual course of
action would be for the regulatory agency to proceed
under 93, the agency could use the administrative
procedures of  1818(b) (1) "in those cases where
adequate relief cannot otherwise be obtained," and
in no others. Larimore, 789 F.2d at 1253.
When the Congress passed the FIRREA a few
years later, it took pains to clarify, in the wake of
Larimore, when a bank regulatory agency is able to
hold a party personally liable in an administrative
proceeding under 1818. The amended 1818 over-
ruled Larimore insofar as it would have protected
from administrative action an individual who had
acted with reckless disregard for the law, but it also

---------------------------------------- Page Break ----------------------------------------

16a

codified the exception in Larimore allowing the
agency to bring an administrative proceeding against
an individual who had not recklessly disregarded the
law but had unjustly enriched himself (presumably
at the expense of the institution). See H.Rep. No.
54, 10lst Cong., 1st Sess. 468 (1989) ; S.Rep. No. 19,
10lst Cong., 1st Sess. 40 (1989), U.S.Code Cong. &
Admin.News 1989, pp. 86,264.
We set out much of this same exegesis in Wachtel.
There the OTS had failed to find even to its own
satisfaction that the individual it held liable had been
unjustly enriched. Id. at 583. `The agency was re-
duced to arguing that it could support its order not-
withstanding the straightforward requirements of
1818(b) (1). Indeed, the precise holding of Wach-
tel is the same as the holding of Larimore: A bank-
ing agency may not impose personal liability under
1818(b) (1) in a case that does not involve unjust
enrichment. Id. at 583. What the OTS could not do
in either Larimore or Wachtel under  1818(b) (1),
it certainly em-mot do here under  1818(b) (6) (A),
which expressly requires that the party being charged
have been unjustly enriched. Section 1818 (b) (6)
cannot make it any easier for the OTS to impose per-
sonal liability than it is under  1818(b) (1), or the
former provision would `eviscerate the clear Congres-
sional intent" in the latter to require more, just as
1818(b) (1) would have done to 93(a) in Lari-
more.
Yet this is precisely what the OTS asks us to do.
In Larimore, the directors of a bank had approved
loans in violation of the law. This contributed to the
bank's losses, but neither the court nor the Congress
thought that the directors had been "unjustly en-
riched." See 789 F.2d at 1252 ("there is absolutely

---------------------------------------- Page Break ----------------------------------------

17a

no proof of personal enrichment"); H. R.Rep. No. 54
at 468, U. S. Code Cong. & Admin.News 1989, P. 264
("Larimore . . . did not involve unjust enrichment").
Here Rapaport allegedly failed to abide by his Agree-
ment to contribute capital; this might have contrib-
uted to (or at least accelerated Great Life's insol-
vency, but it certainly did not enrich Rapaport.
In essence, the OTS would have us approve the ad-
ministrative assessment of personal liability in every
case where a party agrees, but ultimately fails, to
maintain the required level of capital, regardless
whether he gains personally from the operation of the
institution. The Congress clearly contemplated some-
thing more than failing to uphold one's end of a con-
tract when it required that a party have been "un-
justly enriched" before he can be held personally li-
able in an administrative proceeding.
Akin v. OTS, 950 F.2d 1180 (5th Cir.1992), is not
necessarily to the contrary. Akin, like Rapaport, had
agreed to maintain the required level of capital at a
thrift institution that ultimately failed. Id. at 1182.
Unlike Rapaport however, Akin had been the sole
shareholder, President, Chief Executive Officer, and
Chairman of the Board of the failed institution. Id.
at 1181. Had Rapaport received the benefits of office
as Akin did, he may well have been "unjustly en-
riched," at least to that extent, and that distinction
may be enough to reconcile the two cases. See 12
U.S.C. 1818 (b) (6) (A) (party may be ordered to
"make restitution or provide reimbursement, indem-
nification, or guarantee against loss" if unjustly en-
riched ). We express no view on the Fifth Circuit's
implicit conclusion that once a party has been un-
justly enriched, he may be held liable for the institu-
tion's loss, i.e., for an amount in excess of his own
enrichment.

---------------------------------------- Page Break ----------------------------------------

18a

To the extent that Akin's enrichment does not
serve to reconcile these two cases, we respectfully
disagree with the Fifth Circuit. Responding to Akin's
claim that he had not been unjustly enriched, that
court acknowledged that the OTS's position did not
"dovetail[] neatly into a pattern of transfer of a
benefit and restitution of that benefit from a party
wrongfully retaining it," but it refused to require
"a precision fit" between the OTS's position and
"black letter contract law." Id. at 1184. Rather, the
court thought that the terms of the particular pro-
vision should be read broadly because the statute
"[r]ead in its entirety . . . manifests a purpose of
granting broad authority to financial institution reg-
ulators." Id. Sometimes that follows, sometimes not.
Cf. stomper v. Amalgamated Transit Union, Local
241, 27 F.3d 316, 320 (7th Cir.1994) (Easterbrook,
J.: "A court must determine not only the direction
in which a law points but also how far to go in that
direction"). In this context, a "broad" reading of
1818(b) (6) (A) is in effect an unlimited reading
of a statute upon which the Congress intended to
place a limit. Having read out of the law the limi-
tation that the Congress had put into it, the Akin
court was remitted to relying upon the mere hope
that the OTS would limit itself; hence the precatory
dictum that "restitution orders should [not] become
a remedy of choice for OTS." 950 F.2d at 1184 n. 5.
Yet it is hard to see why that would not inevitably be
the result of the Fifth Circuit's decision.
We are mindful that Rapaport made an agreement
with the FSLIC that (unless his third argument is
well-founded) he appears to have breached. Federal
bank regulators are not without means to force a

---------------------------------------- Page Break ----------------------------------------

19a

contract party to live up to his obligations, however.
The Congress has simply made their "remedy of
choice," to use the Fifth Circuit's phrase, a suit in
district court under 12 U.S.C. 93, where the safe-
guards and standards appurtenant to Article III
courts apply. Only if Rapaport had been unjustly
enriched-only if he had received and retained some
personal benefit either from a federal regulator or
from Great Life that he should in justice be required
to disgorge-could the OTS force him onto the
agency's own turf in order to exact restitution.

III. Conclusion

The OTS has the authority under the FIRREA to
enforce a capital maintenance or other agreement in
an administrative proceeding only against a party
who has either been unjustly enriched or has acted
with reckless disregard for some aspect of federal
regulation. Rapaport's alleged failure to contribute
as agreed in order to maintain Great Life's required
level of capital does not amount to such unjust enrich-
ment. Accordingly, we grant his petition  f or review
and set aside the agency's final order.

So ordered.

---------------------------------------- Page Break ----------------------------------------

20a

ROGERS, Circuit Judge, concurring in part and
concurring in the judgment:

In rejecting OTS's contention that the court should
defer to its construction of 12 U.S.C.  1818(b)
(6) (A) (i) under Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 104
S. Ct. 2778, 81 L. Ed.2d 694 (1984), the majority con-
cludes that "[w]e have already held in Wachtel [v.
OTS 982 F.2d 581, 585 (D.C.Cir.1993],] that we
owe no such deference to the OTS's interpretation of
 1818 because that agency shares responsibility for
administration of the statute with at least three other
agencies."  Majority Opinion at 216. However,
Wachtel's suggestion that deference is inappropriate
when more than one agency administers a statute
was dictum that relied on distinguishable caselaw.
The court has yet to decide the appropriate standard
to review the OTS's construction of this provision of
the Financial Institutions Reform, Recovery and En-
forcement Act of 1989 ("FIRREA") 1. pertaining to
cease and desist orders, and the court need not do so
here. As in Wachtel, the result is the same whether
the court applies de novo review or Chevron defer-
ence. The statutory language and the legislative his-
tory demonstrate that Congress did not intend that
retention of money allegedly owed pursuant to a net
worth maintenance agreement, by itself, would consti-
tute "unjust enrichment" under  1818(b) (6) (A) (i).
In Wachtel, a bank holding company sought re-
view of OTS's order, pursuant to 1818 (b) (1), to
make payments based on an alleged agreement to

___________________(footnotes)

1 Pub.L. No. 101-73, 103 Stat. 183 (codified in scattered
sections of U.S.C.).

---------------------------------------- Page Break ----------------------------------------

21a

maintain the bank's net worth. 982 F.2d at 582-83.
Although finding neither unjust enrichment nor reck-
less disregard of banking laws, OTS maintained that
it could order the holding company to make the pay-
ments under 1818 (b) (1) without making these find-
ings. 2. Id. at 585. The court rejected OTS's position
as "almost frivolous," and proceeded to observe that
even if Chevron deference were applicable, OTS's
interpretation would fail because the statute was not
ambiguous and OTS's interpretation was arbitrary.
Id. While the court suggested that Chevron was in-
applicable because OTS administered 1818 jointly
with other agencies, this was unnecessary to the
court's holding that, under any standard of review,
OTS's order was invalid. As dictum, the court's sug-
gestion in Wachtel is not binding circuit law. See,
e.g., Gersman v. Group Health Ass'n, Inc., 975 F.2d
886, 897 (D. C. Cir.1992), cert. denied, - U.S.
-, 114 S. Ct. 1642, 128 L. Ed.2d 363 (1994).
Although the court has stated that it does not defer
to an agency's construction of a statute interpreted
by more than one agency, e.g., Association of Am.
Physicians & Surgeons, Inc. v. Clinton, 997 F.2d 898,
913 (D. C. Cir.1993), the cases other than Wachtel
itself appear readily distinguishable. For example, in
Clinton, 997 F.2d at 913, which involved the Federal
Advisory Committee Act, the court cited two cases
involving statutes that apply to all agencies. See
FLRA v. United States Dep't of Treasury, 884 F.2d

___________________(footnotes)

2 OTS also argued that  1818(b) (6) (A) was inapplicable
"because the money it would extract from petitioners is not
really restitution, reimbursement, indemnification, or guar-
antee against loss." 982 F.2d at 585. Here, OTS seeks to re-
cover from Rapaport under  1818(b) (6) (A).

---------------------------------------- Page Break ----------------------------------------

22a

1446, 1451 (D. C. Cir.1989) (no deference to FLRA's
interpretation of the Freedom of Information Act
("FOIA") and the Privacy Act because "the FLRA
is not charged with a special duty to interpret" these
statutes), cert. denied, 493 U.S. 1055, 110 S. Ct.
863, 107 L.Ed.2d 947 (1990); Reporters Comm. for
Freedom of the Press v. United States Dep't of Jus-
tice, 816 F.2d 730, 734 (D. C. Cir.1987) (no deference
to any agency interpretation of FOIA because "it
applies to all government agencies, and thus no one
executive branch entity is entrusted with its primary
interpretation"), rev'd on other grounds, 489 U.S.
749, 109 S. Ct. 1468, 103 L.Ed.2d 774 (1989). Sim-
ilarly, in Wachtel, the court relied on Professional
Reactor Operator Soc'y v. United States Nuclear Reg-
ulatory Comm'n  939 F.2d 1047, 1051 (D.C. Cir.
1991), in which the court declined to defer to Com-
mission's interpretation of the Administrative Pro-
cedure Act because the statute applies to all agencies
and is not within the Commission's area of expertise.
Even more readily distinguished are cases in which
the court has declined to defer to an agency's inter-
pretation of a statute whose administration is en-
trusted to another agency. E.g., Illinois Nat'l Guard
v. FLRA, 854 F.2d 1396, 1400 (D. C. Cir.1988) ; De-
partment of Treasury v. FLRA, 837 F.2d 1163, 1167
(D. C. Cir.1988). At the same time, the court has
acknowledged that where two agencies were charged
with administering a statute, there "might well be a
compelling case to afford deference if it were neces-
sary for decision [where] both agencies agree as to
which of them has exclusive jurisdiction." CF Indus.,
Inc. v. FERC, 925 F.2d 476, 478 n. 1 (D. C. Cir.1991)
(dictum); see also Suramerica de Aleacions Lamin-

---------------------------------------- Page Break ----------------------------------------

23a

adas, C.A. v. United States, 966 F.2d 660, 665 n. 6
(Fed. Cir.1992).
Consequently, it appears too facile to conclude that
deference is inappropriate simply because more than
one agency is involved in administering a statute.
The question of whether deference is due more likely
depends on the nature of the statute and how Con-
gress has decided it shall be administered. Under
FIRREA, Congress provided for joint decisions
among the several administrative banking agencies on
the allocation of transferred functions. FIRREA
403(b) (1), 103 Stat. 183, 360-61 (1989) (codified
at 12 U.S.C.  1437 note). The statute instructs how
to determine the "appropriate: entity for administer-
ing provisions of the statute. See 12 U.S.C. 1813
(q) (4) (the Director of OTS is the "appropriate
Federal banking agency" "in the case of any savings
association or any savings and loan holding com-
pany"). As is evident, Congress intended the sev-
eral agencies that administer FIRREA to agree re-
garding their respective roles and exercise their ex-
pertise accordingly.
Thus, while Wachtel correctly reminds that con-
sideration be given to the fact that more than one
agency administers the statute, 982 F.2d at 585 n. 4,
deference may nonetheless be appropriate where only
expert banking agencies administer the statute and
there is no disagreement among them about their
respective responsibilities or the agency position
under review. See generally Pension Benefit Guar.
Corp. V. LTV Corp., 496 U.S. 633, 651-52, 110 S. Ct.
2668, 2678-89, 110 L. Ed.2d 579 (1990) ("[P]ractic-
al agency expertise is one of the principal justifica-
tions behind Chevron deference."). Two circuits

---------------------------------------- Page Break ----------------------------------------
        
24a

considering OTS's administration of the provision
at issue here appear, at least implicitly, to agree.
Simpson v. OTS, 29 F.3d 1418, 1425 (9th Cir.1994)
(applying Chevron deference to OTS's definition of
"reckless disregard for the law" under  1818(b)
(6) (A) (ii)), cert. denied, - U.S. -, 115 S. Ct.
1096, 130 L.Ed.2d 1064 (1995); Akin v. OTS, 950
F.2d 1180, 1184 (5th Cir.1992) (same, for interpre-
tation of cease and desist power under  1818(b),
and applying "arbitrary and capricious''/abuse of
discretion standard to OTS's determination that an
individual had been "unjustly enriched" under
1818(b) (6) (A) (i)). Another circuit has staked
out a middle ground. 1185 Ave. of Ams. Assocs. v.
RTC, 22 F.3d 494, 497 (2d Cir.1994) (declining to
give "full Chevron deference to the RTC's interpre-
tation" of 12 U.S.C.  1821(e) because several other
agencies administer FIERRA).
The instant case does not require the court to de-
cide whether Chevron deference should apply to OTS's
interpretation of  1818(b) (6) (A) because, as in
Wachtel, the same result follows whether the court
applies de novo review or Chevron deference. Even
without reference to the common law definition of
unjust enrichment, the legislative history indicates
that Congress did not intend the phrase used in
1818(b) (6) (A) (i) to encompass the retention of
funds owed under a net worth maintenance agree-
ment. See Majority Opinion at 218-19 (citing S.REP.
No. 19, 10lst Cong., 1st Sess. 40 (1989); H.R.REP.
No. 54, 10lst Cong., 1st Sess. 468 (1989); S.REP.
No. 323, 95th Cong., 1st Sess. 7 (1977)). Hence,
OTS failed to prove that Rapaport was unjustly
enriched.

---------------------------------------- Page Break ----------------------------------------

25a

Accordingly, notwithstanding the majority's inter-
pretation of Wachtel and its observations regarding
conditions for deference, at 216-17, I concur in
granting the petition for review.

---------------------------------------- Page Break ----------------------------------------
      
26a
     
APPENDIX B

UNITED STATES OF AMERICA
BEFORE THE
OFFICE OF THRIFT SUPERVISION
DEPARTMENT OF THE TREASURY

Enforcement Review Committee Resolution
No: 90-49
Dated: July 2,1990

IN THE MATTER OF :
ROBERT D. RAPAPORT,
Majority Shareholder of
Great Life Savings Association
Sunrise, Florida

OTS Order No. AP 93-95
Dated: November 18, 1993

DECISION AND ORDER

---------------------------------------- Page Break ----------------------------------------

27a
    
TABLE OF CONTENTS

I. Introduction and Summary of Conclusions . . . . [29a]
II. Background . . . . [30a]
A. Description of the Charges and Summary of
Administrative Proceedings . . . . [30a]
B. Summary of the ALJ's Recommended De-
  cision . . . . [33a]
C. Exceptions to the Recommended Decision . . . . [35a]
III. Findings of Fact . . . . [36a]
IV. Issues . . . . [41a]
V. Discussion . . . . [42a]
A. Authority to Impose and Enforce the Net
   Worth Maintenance Agreement . . . . [42a]
1. Authority of the FSLIC to Require Exe-
cution of a Net Worth Maintenance Agree-
ment as a Condition to the Grant of In-
surance . . . . [42a]
a. The FHLBB had jurisdiction over all
  federally-insured associations . . . . [43a]
b. The imposition of a net worth mainte-
  nance condition on a grant of insur-
  ance was a proper exercise of the
  FSLIC'S authority . . . . [44a]
2. Authority of the OTS to Enforce the Net
Worth Maintenance Agreement in its Ca-
pacity as Primary Federal Regulator  . . . . [47a]
B. Standards for Issuing a Cease and Desist
Order . . . . [53a]
C. Respondent's Violation of the Net Worth
Maintenance Agreement . . . . [53a]
1. Respondent's Control Defenses . . . . [56a]
2. Respondent's State Law Contract De-
fenses . . . . [59a]
3. Respondent's Regulatory Defenses . . . . [63a]

---------------------------------------- Page Break ----------------------------------------

28a

TABLE OF CONTENTS-Continued

D. Right to a Jury Trial . . . . [65a]
E. Unjust Enrichment . . . . [65a]
F. The Appropriate Remedy . . . . [67a] 
1. The Amount of Respondent's Liability . . . . [67a]
a. The examiners's "expert" status . . . . [68a]
b, Admissibility of the 1989 Report of
Examination and related documents . . . . [71a]
c. Entitlement to Offsets . . . . [73a] 
i. Pembroke Loan . . . . [73a] 
(a). Loan Terms . . . . [73a] 
(b). History . . . . [74a]
(c). Respondent's Exceptions . . . . [76a]
(d). Analysis . . . . [77a]
ii. Louisville Loan . . . . [80a] 
(a). Loan Terms . . . . [80a]
(b). History . . . . [80a]  
(c). Respondent's Exceptions . . . . [81a] 
(d). Analysis . . . . [81a] 
VI. Conclusion . . . . [83a]
ORDER . . . . [84a]

---------------------------------------- Page Break ----------------------------------------

29a

DECISION

I. INTRODUCTION AND SUMMARY OF CON-
CLUSIONS

This case arises from a Net Worth Maintenance
Agreement between Robert D. Rapaport ("Respond-
ent") and the former Federal Savings and Loan In-
surance Corporation ("FSLIC"), operating under the
direction of the former Federal Home Loan Bank
Board ("FHLBB").
Respondent, the owner of approximately 70 percent
of the stock of Great Life Savings and Loan, Sunrise,
Florida (the "Association" or "Great Life"), exe-
cuted a Net Worth Maintenance Agreement (the
"Net Worth Maintenance Agreement" or the "Agree-
ment") on March 19, 1985. The Net Worth Mainte-
nance Agreement required him to maintain the net
worth of the Association for a period of five years in
compliance with 12 C.F.R. 563.13 or any successor
regulation. when the Association's capital fell below
the required levels in 1989, the Office of Thrift Super-
vision ("OTS") demanded that Respondent honor
the agreement. Respondent refused to do so.
Based on the record the Acting Director finds that
Respondent's execution of the Net Worth Mainte-
nance Agreement rendered Respondent personally
liable for a portion of the Association's net worth, if
its net worth fell below required levels during the
five year term of the Agreement; that Respondent
violated the Net Worth Maintenance Agreement by
failing to infuse capital into the Association when his
obligation to do so under the Agreement was trig-
gered; and that Respondent's failure to infuse capital
as required under the Agreement unjustly enriched
him. Accordingly, the Acting Director affirms the

---------------------------------------- Page Break ----------------------------------------

30a

conclusions of the Administrative Law Judge. with
respect to Respondent's liability.
The Acting Director affirms in part and reverses in
part the conclusions of the Administrative Law Judge
with respect to the amount of Respondent's liability.
The Administrative Law Judge concluded that Re-
spondent was liable in the amount of $1,946,000.
The Acting Director concludes that Respondent is
entitled to his pro rata share of two offsets totalling
$585,587 in connection with a classified loan to
Pembroke Development Corporation. While the evi-
dence demonstrates that the loan was properly classi-
fied as of the conclusion of the 1989 examination of
Great Life based on the information available at that
time, the weight of the evidence also demonstrates
that under 12 U.S.C. 1818(b) (6), Respondent is
entitled to an offset in the amount of 69.9 per cent
of $585,587-or  $409,325-in connection with this
loan on the record of this proceeding. Accordingly,
the Acting Director orders Respondent to pay
$1,536,675 to the Association in receivership.

II. BACKGROUND

A. Description of the Charges and Summary of
   Administrative Proceedings

In 1990, the OTS placed Great Life into receiver-
ship on June 1, 1990. On July 2, 1990, the OTS
issued a Notice of Charges and Hearing ("Notice")
under section 5(d) (1) (A) of the Home Owners'
Loan Act ("HOLA"), 12 U.S.C. 1461 et seq., and
section 8(b) of the Federal Deposit Insurance Act
("FDIA"), 12 U.S.C.  1811 et seq. The Notice
charges that Respondent, in order to obtain federal
deposit insurance for the Association, executed a Net

---------------------------------------- Page Break ----------------------------------------

31a

Worth Maintenance Agreement with the FSLIC. Ac-
cording to the Notice, Respondent agreed to infuse
capital into the Association should the institution's
net worth fall below the levels required by 12 C.F.R.
563.13 or any successor regulation for a five year
period ending March 19, 1990. The Notice further
alleges that in November, 1989, the OTS notified Re-
spondent that the Association had failed to meet its
regulatory capital requirements as of September 30,
1989 but that Respondent did not infuse capital as
required under the Net Worth Maintenance Agree-
ment; and that in January, 1990, Respondent was
again notified of the deficiency but failed to cure it.
The Notice concludes that Respondent violated the
Net Worth Maintenance Agreement by "failing to
cause the net worth of Great Life to be maintained
at a level required by such Agreement, and/or 12
C.F.R. 563.13 or successor regulation," and by fail-
ing to infuse capital as required under the Agree-
ment. The Notice also concludes that Respondent was
unjustly enriched by such violation.
Respondent thereafter brought suit in federal dis-
trict court for the southern district of Florida to pre-
liminarily enjoin the enforcement proceeding. He
sought and obtained a stay of this proceeding from
Administrative Law Judge Frederick M. Dolan (the
"ALJ") pending resolution of the federal court ac-
tion. After the district court denied his request for
an injunction: Respondent unsuccessfully moved to

___________________(footnotes)

1 Respondent subsequently refiled a Second Amended Com-
plaint. On August 27, 1993, the district court dismissed all
but one of the counts (under the Freedom of Information
Act). See Second Amended Complaint (May 3, 1991) and
Order, Case No. 90-6442-CIV-Moore (August 27, l993).                    
      
---------------------------------------- Page Break ----------------------------------------

32a

dismiss the proceeding herein. Respondent later
answered the charges, asserting some 15 affirmative
defenses. OTS Enforcement's ("Enforcement") mo-
tion to strike these defenses was denied.
On June 8-12, 1992, a hearing was held in Fort
Lauderdale, Florida before the ALJ during which the
parties presented the testimony of witnesses and in-
troduced documentary evidence. The parties filed
post-hearing proposed findings of fact, conclusions of
law, memoranda of law, briefs arid reply briefs.
The ALJ requested and obtained an extension of time
in which to issue his Recommended Decision. OTS
Order No. AP 93-8 (Jan. 29, 1993).
Respondent again moved to dismiss the action based
on the District of Columbia Circuit's decision in
Wachtel v. OTS, 982 F.2d 581 (D.C. Cir. 1993). The
ALJ referred Respondent's motion to dismiss to the
Acting Director of the OTS, who denied it on April
12,1993.
The ALJ issued a Recommended Decision and Or-
der ("Recommended Decision") on April 13, 1993.
Respondent filed exceptions to the Recommended De-
cision, and Enforcement opposed Respondent's ob-
jections. On July 15, 1993, the parties were notified
that the ALJ's .Recommended Decision had been sub-
mitted to the Acting Director for his final decision.
12 C.F.R.  509.32(b) (1990). By Order dated Oc-
tober 1, 1993 (OTS Order No. AP 93-79), the Acting
Director extended the time for rendering his final
decision until November 19, 1993. 2.

___________________(footnotes)

2 Respondent subsequently moved to dismiss this proceeding
on the ground that the Acting Director's extension of the time
for decision deprives him of jurisdiction to decide the case.
The Acting Director is issuing simultaneously a separate de-
cision and order disposing of this motion,

---------------------------------------- Page Break ----------------------------------------
        
33a

B. Summary of the ALJ's Recommended
Decision

The ALJ determined: that Respondent was liable
for violation of the Net Worth Maintenance Agree-
ment, concluding that Respondent, a majority share-
older of the Association, had entered into a Net
Worth Maintenance Agreement in March, 1985
whereby he agreed to be personally responsible for
his pro-rata share of any net worth deficiency in-
curred by the Association during a five-year period;
that the 1989 examination of the Association revealed
that the Association had a capital deficiency; that the
OTS notified Respondent of the deficiency and re-
quested a capital infusion in November, 1989 pur-
suant to the Net Worth Maintenance Agreement; that
Respondent failed to infuse capital as required by
the Net Worth Maintenance Agreement; and that
Respondent was unjustly enriched by the continued
receipt of the benefits of federal insurance after he
failed to make the required capital contribution and
by the retention of funds or property he was other-
wise obligated to infuse into the Association.
The ALJ also rejected Respondent's numerous de-
fenses. In response to Respondent's claim that two
loans were improperly classified by the OTS during
the 1989 examination-and that his liability under
the Net Worth Maintenance Agreement should be
reduced accordingly-the ALJ concluded that the
loans had been properly classified under generally ac-
cepted accounting principles ( "GAAP" ) and thus Re-
spondent was not entitled to any offset. The ALJ
based his determination on, among other things, evi-
dence of the examiners' conclusions that the classifica-
tions were properly taken, rejecting Respondent's ar-

---------------------------------------- Page Break ----------------------------------------

34a

guments that such evidence was either inadmissible
or should be given little weight. 3.
The ALJ also dismissed Respondent's various claims
based on state contract law that the Net Worth Main-
tenance Agreement was unenforceable by the OTS.
Because the Net Worth Maintenance Agreement was
a written agreement with a federal agency, the ALJ
concluded that federal banking law, rather than Flor-
ida contract law, should govern its interpretation. In
particular, the ALJ found the Fifth Circuit's decision
in Akin v. OTS, 950 F.2d 1180 (5th Cir. 1992)-
upholding the OTS's enforcement of a similar net
worth maintenance agreement-to be controlling
precedent.
With respect to Respondent's claim that he could
not be liable under the Agreement because he had
lost "actual control" of Great Life as a result of reg-
ulatory action, the ALJ concluded that Respondent's
liability rested solely on his status as a majority
shareholder, not with reference to whether he had
"actual control" of the Association. The ALJ con-
cluded that the passage of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989
("FIRREA") did not render the Net Worth Main-
tenance Agreement unenforceable and that Respond-

___________________(footnotes)

3 In that regard, Enforcement argued in its Post-hearing
submissions that only the Association-not Respondent-had
standing to challenge the loan classifications because the chal-
lenge amounted to a collateral attack on the OTS's appoint-
ment of a receiver for the Association in June, 1990. The
ALJ rejected Enforcement's position, determining that it had
not shown that Respondent would have been able to challenge
the appointment decision and that Enforcement had failed to
object to Respondent's challenge at the hearing.

---------------------------------------- Page Break ----------------------------------------

35a

ent's claim that the FHLBB/OTS caused the Asso-
ciation financial damage was unsupported.
The ALJ also rejected the argument that the
FHLBB lacked authority to require Respondent to ex-
ecute a Net Worth Maintenance Agreement. The ALJ
determined further that the post-FIRREA revision of
the OTS policy requiring execution of such agree-
ments for de novo thrifts applied prospectively and
did not invalidate a previously executed agreement.
The ALJ concluded that 12 C.F.R. 567.2 was the
successor regulation to 12 C.F.R. 563.13. Finally,
the ALJ rejected Respondent's claim that he was en-
titled to a jury trial.
In light of the foregoing, the ALJ determined that
Great Life's capital deficiency was $2,784,000 as of
December 31, 1989 and accordingly recommended that
Respondent be ordered to make a capital infusion to
Great Life in the amount of $1,946,000, representing
69.9% of that deficiency.

C. Exceptions to the Recommended Decision

Respondent has entered exceptions to most of the
ALJ's Recommended Decision, reasserting the argu-
ments he raised before the ALJ. Respondent raises
five principal arguments, summarized as follows: 1)
the OTS is not statutorily authorized to enforce an
agreement to which the FSLIC was a party; 2) the
OTS has not satisfied the statutory requirements for
a cease and desist order; 3) the Net Worth Main-
tenance Agreement is not an enforceable contract;
4) the OTS administrative proceedings are uncon-
stitutional because Respondent was deprived of a jury
trial; and 5) the FSLIC was not authorized to enter
into a Net Worth Maintenance Agreement in 1985.

---------------------------------------- Page Break ----------------------------------------

36a

Enforcement filed no exceptions, but relied in opposi-
tion to Respondent's exceptions.

III. FINDINGS OF FACT

In April 1984, Respondent, who sat on the board
of at least one other thrift, and other investors ap-
plied to the Federal Home Loan Bank of Atlanta
( "FHLB-Atlanta") for FSLIC insurance of the ac-
counts of the Association, a de novo thrift chartered
under Florida law. Originally, Respondent intended
to acquire approximately 74 per cent of the Associa-
tion's stock; the attorney representing the applicant,
Marvin Rosen, intended to acquire 25 per cent; and
the remainder would be held by individual members
of the Board. 4. While the Association's application for
federal deposit insurance was pending, the FHLBB
adopted a policy of requiring majority shareholders
of de novo state-chartered thrifts to execute net worth
maintenance agreements. See 49 Fed. Reg. 41237
(October 22, 1984). On August 15, 1984, counsel for
the applicant notified the FHLBB that the Association
agreed to abide by the proposals if codified. 5. The

___________________(footnotes)

4 There is no indication in the record that the percentage of

Great Life stock owned by Respondent changed during the
period March 19, 1985-March 19, 1990.
5 Respondent contends that this letter [OTS Exhibit 4) was
inadmissible as hearsay. The ALJ had admitted it into evi-
dence The Director affirms the ALJ's ruling. First, under
the standards relevant to this proceeding-which require that
evidence be relevant, material, and nonrepetitive-the Act-
ing Director concludes it was admissible. See 12 C.F.R.
509.24 (a) (1990). Moreover, the document would likely
have been admissible even under the Federal Rules of Evi-
dence. See United States v. Norris, 205 F.2d 828, 829 (2d
Cir. 1953) (loan application completed by applicant and main-

---------------------------------------- Page Break ----------------------------------------
        
37a

record does not demonstrate that until the initiation
of this proceeding Respondent ever challenged the
FHLBB's requirement that he execute a net worth
maintenance agreement.
On March 7, 1985, the FHLBB issued a resolution
approving the Association's application for FSLIC de-
posit insurance, conditioned on, among other things,
Respondent's execution and submission of a net worth
maintenance agreements Apparently with the assist-
ance of counsel, Respondent negotiated the terms of
the Net Worth Maintenance Agreement and on March
19, 1985, Respondent executed the Net Worth Main-
tenance Agreement for a five-year term. On May 21,
                 
___________________(footnotes)

tained by bank admissible as record kept by bank in ordinary
course of business); United States v. Ward, 575 F. Supp. 159,
162 (E.D.N.C. 1983) (food stamp application signed by de-
fendant admissible, under business record exception, citing
Federal Rule of Evidence 803 (6)).
The ALJ inferred from OTS Exhibit 4 that Respondent
had actual knowledge of this letter. Respondent never effec-
tively rebutted this inference, and the Acting Director finds
that Respondent had such knowledge.
6 At the time that the FHLBB passed this resolution, the
applicant represented that Mr. Rosen intended to purchase
25 per cent of the Association's stock. Accordingly, the reso-
lution required that Mr. Rosen execute a net worth mainte-
nance agreement as well. The FHLBB was later informed
by counsel for the applicant that Mr. Rosen would purchase
only 24.6 per cent of the stock and thus did not intend to, and
was not required to, execute a net worth maintenance agree-
ment.
Respondent has claimed as a defense that Mr. Rosen
breached his professional responsibilities to the Respondent,
That is not a valid defense here; to the extent Respondent
has a claim against Mr. Rosen he may pursue it in the appro-
priate forum.

---------------------------------------- Page Break ----------------------------------------

38a

the FHLBB informed FHLB-Atlanta that the Asso-
ciation's application for insurance of accounts had
been approved. 7.
The Net Worth Maintenance Agreement provides
in substance that, in light of: (1) Respondent's pro-
posal to control 25 per cent or more of the Associa-
tion's stock, (2) the Association's application for in-
surance and (3) the FSLIC statement of policy re-
quiring such individuals, groups, or entities to exe-
cute net worth maintenance agreements, Respondent
(undertakes and agrees pursuant to the requirements
of 12 C.F.R. 571.6 (4), or any successor regulation
thereto, to maintain the Association's net worth in
compliance with the Net Worth Requirement appli-
cable to the Association, computed in accordance with
12 C.F.R. 563.13 or any successor regulation then in
effect," by infusing capital into the Association in an
amount proportionate to the amount of his stock own-
ership if the Association's net worth fell below re-
quired levels. The Net Worth Maintenance Agree-
ment further provides that "it shall be deemed a con-
tract made under and governed by the laws of Flor-
ida," and that it is a "written agreement" entered
into with the FSLIC. 8.

___________________(footnotes)

7 Accordingly, the deposits of Great Life were insured by
the FSLIC from approximate] y May 21, 1985, until approxi-
mately August 9, 1989 and by the Savings Association Insur-
ance Fund ("SATE") of the Federal Deposit Insurance Cor-
poration ("FDIC") from approximately August 9, 1989,
through June 1, 1990.
8 Specifically, the Net Worth Maintenance Agreement pro-
vides:
This Agreement has been duly authorized, executed, and
delivered, and constitutes, in accordance with its terms,

---------------------------------------- Page Break ----------------------------------------

39a

Section VI of the Agreement, entitled "Rights and
Remedies of FSLIC not Exclusive," provided that
"[a]ny and all rights available to the FSLIC under
the terns of this Agreement shall be in addition to,
and not in lieu of, any other rights or remedies avail-
able to the FSLIC in law or equity." The Agree-
ment further provides that:

"[s] pecifically, the FSLIC is not limited in the
event of default to proceeding initially or solely
against the shares. The acquirer is personally
liable for any Net Worth Deficiency and the
FSLIC may elect to proceed against any of the
Acquirer's assets if the Acquirer does not sat-
isfy the entire amount of the Net Worth De-
ficiency within 60 days of the giving of a notice
of Default by the FSLIC.

The Net Worth `Maintenance Agreement also pro-
vided that it would terminate five years from March
19, 1985. In addition, the Agreement states that:

All references to regulations of the [FHLBB]
or the FSLIC used in this Agreement shall. in-
clude any successor regulation thereto, it being
expressly understood that subsequent amend-
                   
___________________(footnotes)

a valid and binding obligation of the Acquirer, the Asso-
ciation and the FSLIC. It is understood and agreed that
this Agreement is a "written Agreement entered into with
the Corporation [FSLIC]" as that phrase is used in See-
tion 407(e) of the National Housing Act, 12 U.S.C.
1730(e) (1982).

Section 407 (e) of the NHA, like current section 8 of the
FDIA, authorized the FSLIC to impose a cease and desist or-
der for a violation of a written agreement. 12 U.S.C.
1730 (e).

---------------------------------------- Page Break ----------------------------------------

40a

ments to such regulations may be made and that
such amendments may increase or decrease the
Acquirer's obligations under this Agreement.

Soon after its inception, the Association experi-
enced supervisory difficulties. The FHLBB's 1986
examination of Great Life revealed a net worth de-
ficiency in the Association's first year of operation.
Moreover, the Association had an extremely high con-
centration (59 percent) of commercial real estate
loans and was operating beyond the scope of its bus-
iness plan. In lieu of enforcement action, the FHLBB
and the Association entered into a Supervisory Agree-
ment on April 17, 1986, which, inter alia, imposed
operating restrictions with respect to certain real
estate loans, provided for a reduction of total liabili-
ties, and required compliance with the loans-to-one-
borrower regulation and development of underwriting
standards and loan documentation procedures. As it
developed, the Association never recovered from these
early problems, and these restrictions remained in ef-
fect for the life of the Association.

On October l2, 1989, the OTS-Atlanta commenced
a regular examination of the Association. The ex-
amination revealed that the Association had roughly
$8.4 million in classified assets, which was more than
four times the Association's regulatory capital. Con-
cluding that the Association was capital deficient, the
OTS found Respondent in default under the Agree-
ment and demanded in writing on November 14, 1989,
that Respondent infuse his pro rata share of the
Association's capital deficiency-then calculated at
$106,248 (representing 69.9% of a $152,000 capital
deficiency as of September 30, 1989)-under the Net
Worth Maintenance Agreement. Respondent acknowl-

---------------------------------------- Page Break ----------------------------------------

41a

edged receipt of the notice but did not infuse any
capital into the Association as a result. By year-end,
the Association had a risk-based capital deficiency of
approximately $2.8 million (including allowable gen-
eral reserves). 9.
As a result of the Association's capital deficiency,
the OTS obtained the board of directors' consent to
merge the Association if the OTS should find a suit-
able merger partner. On January 16, 1990, the OTS-
Atlanta again informed Respondent that the Associa-
tion was capital deficient; that Respondent was in de-
fault under the terms of the Net Worth Maintenance
Agreement; and that as a result the OTS could pro-
ceed against his personal assets in order to cure the
deficiency. Under protest, the Association reclassified
certain assets in late March 1990, at the insistence of
the OTS.
Again in April, 1990, the OTS informed Respond-
ent that the Association had failed to meet its risk-
based capital requirements by $3.236 million (exclud-
ing general reserves ) as of year-end 1989. It is un-
contested that Respondent made no payment under
the Net Worth Maintenance Agreement in response
to any of the OTS's demands. In June, 1990, the
Association was placed into receivership. 10.

IV. ISSUES

This proceeding presents the following issues for
the Acting Director's decision. First, the Acting Di-

___________________(footnotes)
 
9 Excluding general reserves, the deficiency was approxi-
mately $3.2 million.
10 The  Director also adopts additional facts as set forth in
the discussion concerning Respondent's entitlement to offset
the amount of his liability, infra section V. F. 1. c. i, and ii.

---------------------------------------- Page Break ----------------------------------------

42a

rector must determine whether the FSLIC and the
OTS were authorized, respectively, to require the ex-
ecution of, and seek compliance with, the Net Worth
Maintenance Agreement. If so, it must then be de-
termined whether Respondent violated the Agree-
ment.
If he has, the Acting Director must consider whether
Respondent's purported lack of "actual control" af-
fects his obligation to honor the Net Worth Main-
tenance Agreement; whether Florida state contract
law or federal common law controls the interpreta-
tion of the Agreement, and whether Respondent's
common law contract defenses properly apply in this
proceeding; whether Respondent is excused from
performance under the Net Worth Maintenance
Agreement by the OTS's post-FIRREA repeal of the
net worth maintenance agreement requirement for
de novo thrifts; and whether Respondent is entitled
to "offset" his liability in connection with two loans
he argues were classified improperly.

V. DISCUSSION

A. Authority to Impose and Enforce the Net
Worth Maintenance Agreement
1. Authority of the FSLIC to Require Ex-
ecution of the Net Worth Maintenance
Agreement as a Condition to the Grant
of Insurance

Respondent complains that the FSLIC had no au-
thority to require that he execute a net worth main-
tenance agreement in 1985. The Director rejects this
contention. The FHLBB-as the operating head of
FSLIC was statutorily authorized at the time the
Net Worth Maintenance Agreement was executed in

---------------------------------------- Page Break ----------------------------------------
          
43a

1985 to impose appropriate conditions on applicants
seeking federal deposit insurance coverage (including
state-chartered thrifts), This authority-extended to
requiring execution of a net worth maintenance
agreement.

a. The FHLBB had jurisdiction overall
federally insured associations.

Under the National Housing Act ("NHA"), 12
U.S.C. 1724 et seq. (1982), the FHLBB-sitting as
the operating head of the FSLIC-acted as both regu-
lator and insurer of all federally insured thrifts, in-
cluding those chartered under state law. 11. 12 U.S.C.
1725(a),1730.
If a state-chartered institution sought to obtain
federal deposit insurance; it voluntarily subjected it-
self. to the regulatory and enforcement jurisdiction
of the FHLBB:

FSLIC insurance, in the case of state-chartered
associations, is voluntary and becomes effective
only if such institutions apply for it and are ac-
cepted. As a condition for eligibility under the
program, state-chartered thrifts agree to inspec-
tion and regulation by the Board. The Board,
moreover, possesses the ultimate authority of
terminating an association's insurance if it finds
that institution engaging in unsafe or unsound
practices.

Lincoln Savings and Loan Ass'n v. Federal Home
Loan Bank Board, 670 F. Supp. 449, 453-54 (D.D.C.

___________________(footnotes)

11 Under the HOLA, the FHLBB exercised direct regulatory
and enforcement authority over federally-chartered thrifts,
12 U.S.C. 1461 et seq. (1982), which was largely duplicative
of its authority under the NHA.

---------------------------------------- Page Break ----------------------------------------

44a

1987). Accordingly, the deposits of eligible savings
and loan associations organized and operated under
state laws, such as the Association, were insured by
the FSLIC and were subject to its regulation under
sections 402 and 403 of the NHA, 12 U.S.C. 1725
(a) and 1726(b) (1982). The FHLBB, as operating
head of the FSLIC, was authorized to bring cease and
desist proceedings and exercise the full range of en-
forcement authority under section 407 of the NHA,
12 U.S.C. 1730, with respect to federally-insured,
state-chartered institutions such as the Association.
See, e.g., Saratoga Savings and Loan Ass'n  v. Federal
Home Loan Bank Board, 879 F.2d 689, 692 (9th Cir.
1989) ; Otero Savings and Loan Ass'n v. FHLBB, 665
F.2d 279, 288 (lOth Cir. 1981 ); Lincoln Savings and
Loan Ass'n, 670 F. Supp. at 450-52.

b. The imposition of a net worth main-
     tenance condition on a grant of insur-
     ance was a proper exercise of the
     FSLIC's authority.

The FSLIC (under the direction of the FHLBB)
was "vested with great discretion in regulating the
institutions under its jurisdiction." FSLIC v. Smith,
781 F. Supp. 1039, 1046 (E.D. Ark. 1989) (citing
former 12 U.S.C.  1464(a) and 1726(b)). Part of
that discretionary authority included the ability to
require the execution of capital maintenance agree-
ments for federally insured, de novo state-chartered
thrifts as a means to protect the FSLIC from loss.
The NHA required the FSLIC, under the direction
of the FHLBB, to review applications for insurance
submitted by state-chartered institutions 12 U.S.C.
1725, 1726. In so doing, the FSLIC was statu-
torily required to consider the applicant's financial

---------------------------------------- Page Break ----------------------------------------

45a

condition, including the existence of any capital im-
pairment and the adequacy of the applicant's reserves.
See 12 U.S.C. 1726(b) and (c). Based on these
statutory provisions, the FSLIC was specifically em-
powered to impose conditions on the grant of insur-
ance. See 12 C.F.R. 562.7 (1984). 12.
Section 407 (e) of the NHA makes clear that Con-
gress intended the FSLIC to be able to impose condi-
tions on the grant of insurance and enter into writ-
ten agreements thereto. The FSLIC was authorized
to pursue enforcement action in the event of a viola-
tion of "any condition imposed in writing by the
FSLIC in connection with the granting of any appli-
cation. . . or any written agreement entered into with
the [FSLIC] . . . . " 12 U.S.C. 1730 (e) (1). This
language would be meaningless if the FSLIC was not
empowered to enter into a written agreement in the
first instance. See Kaneb, 650 F.2d at 82. More-
over, Congress amended section 407 several times be-
tween 1970 and 1989. If it had disagreed with the
FHLBB's or the FSLIC's interpretation of section
407, it could have revised the section accordingly. See
Zenith Radio Corp. v. U.S., 437 U.S. 443,457 (1978).
Accordingly, courts have specifically upheld the
FHLBB's authority to impose a capital maintenance
requirement, through FSLIC's regulatory authority,

___________________(footnotes)

12 The FSLIC's authority to do so also comports with the
well-settled principle that an agency's statutory authority to
approve or deny applications inherently includes the power to
condition approval. See, e.g., Southern Pac. Co. v. Olympian
Dredging Co., 260 U.S. 205, 208 (1922) (" [t] he power to
approve implies the power to disapprove and the power to dis-
approve necessarily includes the lesser power to condition an
approval" ); Kaneb Servs., Inc. v. Federal Sav. & Loan Ins.
Corp., 650 F.2d 78, 82 (5th Cir. 1981).

---------------------------------------- Page Break ----------------------------------------

46a

under the federal banking laws. 13. See In re First-
corp., 973 F.2d 243, 250 n.6 (4th Cir. 1992) (" [a]
capital maintenance obligation imposed as a condition
 
___________________(footnotes)

l3 As both the insurer and regulator, the FHLBB's primary
concern in the consideration of applications for insurance of
de novo thrifts was to reduce the risk of loss to newly-chartered
institutions, and ultimately, to the insurance fund. 48 Fed.
Reg. 54320 (Dec. 2, 1983). To that achieve that purpose, the
FHLBB in August 1984 proposed to issue a policy statement
requiring controlling persons to execute a net worth mainte-
nance agreement. 49 Fed. Reg. 33141 (August 21, 1984).
Under the proposed net worth maintenance agreements, con-
trolling persons who held in excess of 80 percent of the insti-
tution's total stock would be responsible for 100 percent of a
net worth deficiency; controlling persons holding less than 80
percent would be responsible for a payment proportionate to
the amount of stock held. Id. On October 15,1984, the FHLBB
adopted the policy statement as a final rule, including the
requirement that controlling person(s) execute a net worth
maintenance agreement for a period of at least five years. 49
Fed. Reg. 41238 (October 22, 1984), codified at 12 C.F.R.
571.6 (1985). Under the policy statement, a "controlling
shareholder" was defined as:

[A]ny individual who will control, or any group of indi-
viduals acting in concert to control, or controlling per-
sons for a company which does not have substantial inde-
pendent economic substance that will control, directly or
indirectly, 25 percent or more of the stock of a de novo
institution.

12 C.F.R. 571,6 (d) (iv) (b) (1985). The policy statement
was thus in effect at the time Great Life's application for
deposit insurance was approved.
In August 1988, when the FHLBB revised its policies re-
garding net worth maintenance agreements so that they
would be capped, or limited, at a predetermined amount. 53
Fed. Reg.  31761, 31762 (August 19, 1988). This policy change 
as well as others that were undertaken after 1988, applied
prospectively only and did not alter Respondent's obligation

---------------------------------------- Page Break ----------------------------------------

47a

of FHLBB's approval of an acquisition, however, is
clearly enforceable by OTS under settled law"); see
also Akin v. OTS, 950 F.2d 1180 (5th Cir. 1992). 14.
Thus, the FSLIC, under FHLBB's direction, was per-
mitted to require as a precondition to the grant of
federal insurance to the Association that a controlling
person, such as Respondent, execute such a "written
agreement" as a reasonable means to protect the in-
insurance fund from loss.

2. Authority Of the OTS to Enforce the Net
Worth Maintenance Agreement in its
Capacity as Primary Federal Regulator

One of the central reforms in FIRREA was to di-
vide the dual regulatory and insurance functions held
by FSLIC and its operating head, the FHLBB, among
separate regulatory and insurance agencies. The reg-
ulatory and enforcement powers of FSLIC fell to the
OTS. The OTS was thus statutorily authorized" to
take enforcement action against Respondent, in its ca-
pacity as "the appropriate federal banking agency," 15.
        
___________________(footnotes)

to honor the net worth maintenance agreement imposed on
him in accordance with the 1984 policy. For later revisions
to the net worth maintenance policies of the FHLBB and
the OTS, see Thrift Bulletin No. 5 (October 19, 1988); 54
Fed. Reg. 49,418 (November 30, 1989); and Thrift Bulletin
No. 5a (April 12, 1990).

14 Cf. Board of Governors of the Federal, Reserve System
v. Lincolnwood Corp., 439 U.S. 234 (1978) (Federal Reserve
Board may use approval process to require infusion of addi-
tional capital into subsidiary).
15 Section 3 (q) (4) of the FDIA, 12 U.S.C.  1813 (q) (4),
provides that the "appropriate federal banking agency" is
the Director of the OTS in the case of any savings association
or any savings and loan holding company.

---------------------------------------- Page Break ----------------------------------------

48a

based upon a violation of "a written agreement en-
tered into with the agency." See 12 U.S.C. 1818
(b). The Net Worth Maintenance Agreement in this
case was created by the FHLBB and founded on
FSLIC's regulatory and enforcement authority.
FIRREA, however, abolished the FSLIC and trans-
ferred its regulatory and enforcement authority over
state-chartered, federally-insured thrifts to the OTS.
The FSLIC net worth regulations that were cited
in the Net Worth Maintenance Agreement were trans-
ferred to the OTS. 16. The OTS thus is the appropriate
entity to enforce a "written agreement with the
agency" in its role as primary federal regulator of
the Association and affiliated persons such as the
Respondent.
Respondent complains that because the Agreement
was required by the FSLIC, the OTS cannot now

___________________(footnotes)

16 The capital regulations were promulgated pursuant to
FIRREA  301, which amended the HOLA to add section
5(t), 12 U.S.C. 1464 (t), and required the OTS to promul-
gate regulations by November 7, 1989, prescribing uniformly
applicable capital standards for all savings associations. These
regulations were published at 12 C.F.R. Part 567 and became
effective on December 7, 1989. The preamble to these regula-
tions, published in the Federal Register on November 8, 1989,
states that:

The [OTS] has reorganized and relocated its capital regu-
lations, which appeared at 561.13, 563.18, 563.14,
563.14-1, and 563.47 at the time of the 12/88 proposal,
into a new part 567. It believes this new structure will
make it easier for those applying or subject to these
capital regulations to determine and understand their
content.

54 Fed. Reg. 46845, 46845 (November 8, 1989) (emphasis
added ). Thus, the new capital regulations were intended to,
and did, replace the former net worth requirements.

---------------------------------------- Page Break ----------------------------------------

49a

enforce it because OTS is not a successor to the
FSLIC; rather, he claims, the FSLIC's insurance
functions were transferred to the- FDIC. Respondent
is correct only in that FIRREA repealed the Na-
tional Housing Act (thereby eliminating the FSLIC)
and transferred the insurance" fund and its adminis-
tration to the FDIC. Respondent's argument ignores,
however, the fact that the FSLIC also performed reg-
ulatory and enforcement functions over federally-
insured institutions. See 12 U.S.C. 1725 (a), 1730
(1982) .
FIRREA divided the FSLIC's responsibilities. In
place of the FSLIC insurance fund, it created the
SAIF, a new thrift insurance fund under the admin-
istration of the FDIC. 12 U.S.C. 1821 (a) (6). The
FSLIC's regulatory functions-the examination," su-
pervision, and regulation of all federally-insured sav-
ings associations-were transferred to the OTS. 12
U.S.C. 1463(a) (1); 1464(d) (2) (A). FSLIC's en-
forcement authority to institute cease and desist pro-
ceedings against state-chartered thrifts under the
NHA was transferred to the OTS. Id.; see also Akin,
950 F.2d at 1182 n.2 ("[t]he FIRREA dissolved the
FSLIC and created the OTS to act as the principal
regulator of savings and loan associations") ; In re
Keating, OTS Decision and Order No. AP 91-20 at 9
May 11, 1991]; 54 Fed. Reg. 46845, 46846 ( Novem-
ber 8, 1989) (FIRREA "established the [OTS] as
the primary federal banking regulator for all savings
associations and savings and loan holding compa-
nies.") 17.

___________________(footnotes)

17 Although this issue was not raised by the parties, the
Director notes that there is an apparent error in the heading
to the Title 12, USC and USCA versions of  1463(a), which

---------------------------------------- Page Break ----------------------------------------

50a

Respondent contends that the repeal in FIRREA
of the NHA extinguished FSLIC's regulatory and en-
forcement authority and prevented it from being
passed on to the OTS. Respondent relies on the pro-
vision in FIRREA that powers not expressly trans-
ferred to another entity would remain with the OTS,
unless otherwise repealed by FIRREA. FIRREA
301, HOLA  3(e), 12 U.S.C. 1462a (e)(l). Sec-
tion 1462a (e) does not apply here, however, because
the regulatory and enforcement authority over state-
chartered, federally-insured thrifts was in fact ex-
pressly transferred to the OTS under 12 U.S.C.
1463(a)(l).
There can be no serious dispute that this agreement
survived FIRREA. Congress did not contemplate that
agreements that had been entered into with the
FSLIC would simply disappear after August 9, 1989.
FSLIC's authority to enforce written agreements un-
der section 407 of the NHA was expressly preserved
by the savings provision of FIRREA, 401(f). That
section provides that the abolition of the FSLIC by
FIRREA 401 (a):

. . . shall not affect the validity of any right,
duty, or obligation of the United States, the

___________________(footnotes)

are entitled "Federal savings associations." As the actual
language of this provision makes clear, this section applies to
both federal and state-chartered institutions. This section
also separately defines "savings association" and "federal sav-
ings association." 1462(4) and (5).
This interpretation comports with the legislative history as
evidenced by the conference report on FIRREA. See Conf.
Rept. to accompany H.R. 1278 ("The Director [of OTS] is
responsible for the examination and supervision of all savings
and loans  . . . . ").

---------------------------------------- Page Break ----------------------------------------

51a

Federal Savings and Loan Insurance Corpora-
tion, or any other person, which-

(A) arises under or pursuant to any section
of title IV of the National Housing Act [12
U.S.C. 1724 et seq.], and

(B) existed on the day before the date of
the enactment of this Act [Aug. 9, 1989].

FIRREA  401(f). See also 54 Fed. Reg. 34637 (Au-
gust 21, 1989) (OTS adopts and ratifies, among other
things, all pre-FIRREA regulations, orders, resolu-
tions, enforcement proceedings, agreements and other
determinations of the FHLBB and FSLIC not trans-
ferred elsewhere); 1 U.S.C. 109 (general savings
statute). Accordingly, the Net Worth Maintenance
Agreement was not rendered unenforceable by the
passage of FIRREA.
Respondent contends in addition that the agency
is estopped from finding that the OTS inherited
FSLIC's regulatory and enforcement function because
in the related district court litigation, the OTS ar-
gued that it was not a successor to a party to the
contract since FSLIC's insurance function was trans-
ferred to the FDIC by FIRREA. 18. Respondent's ar-

___________________(footnotes)

18 The OTS argued in the district court that:

The Amended Complaint is rife with the incorrect assump-
tion that Defendant Ryan, as OTS Director, is the suc-
cessor in interest to the FSLIC as a party to the Net
Worth Maintenance Agreement . . . The Director's au-
thority to enforce the agreement, however, derives not
from any status as a successor in interest to FSLIC as
a contracting party, but rather from his statutorily-
granted power under FIRREA to enforce conditions im-
posed in connection with Great Life's application for
federal deposit insurance and to enforce FSLIC's written

---------------------------------------- Page Break ----------------------------------------

52a

gument is of no weigh, considering the context of the
related litigation. The purpose of Respondent's suit
was to interrupt the instant administrative proceed-
ing In an attempt to evade the express jurisdic-
tional bar on such suits, see 12 U.S.C.  1818 (i) ( 1),
Respondent characterized his claims as sounding in
contract. The district court rejected this approach
and dismissed Respondent's contract claims under sec-
tion 1818 (i) (1). lt. was thus unnecessary for the
court to consider the OTS's subsidiary argument that,
assuming Respondent's claims were in contract, then
under section 215 of FIRREA, 12 U.S.C 1821a(a),
they were a liability of the FSLIC Resolution Fund.
This position is wholly consistent with the Acting
Director's conclusion that the OTS has succeeded to
the FSLIC's regulatory and enforcement authority. 19.

___________________(footnotes)

agreements with controlling shareholders like Rapaport.
. . . The OTS' authority to enforce FSLIC's Net Worth
Maintenance Agreement with plaintiff thus is statutory,
not contractual  . . . . 

OTS's Memorandum of Law in Support of Motion to Dismiss
and Motion for Summary Judgment, dated September 27,
1990, at pp. 31-33 (emphasis added) (citations omitted).

19 The Acting Director also rejects Respondent's claims that
enforcement of the Net Worth Maintenance Agreement is
arbitrary and capricious because such agreement allegedly
have not been enforced against others. The net worth mainte-
nance cases cited herein for their precedential value demon-
strate that enforcement action was taken against individuals
or entities that committed to maintain an institution's net
worth and subsequently failed to honor that commitment.
See, e.g., Wachtel, 982 F.2d 581; Akin, 950 F.2d 1180; First-
Corp, 973 F.2d 243; see also In re Christo, OTS Order No.
AP 93-69 (August 27, 1993). Accordingly, the OTS has in
fact sought enforcement of commitments to infuse capital
where, in its prosecutorial discretion, it has concluded the
facts warrant such action.

---------------------------------------- Page Break ----------------------------------------

53a

B. Standards for Issuing a Cease and Desist
Order

Section 8(b) (1) of the FDIA provides that if, in
the opinion of the "appropriate federal banking
agency," an insured depository institution or an
institution-affiliated party has violated any written
agreement entered into with the agency, or any con-
dition imposed in writing in connection with the con-
sideration of any application, the agency may issue
and serve a notice of charges in respect thereof. 12
U.S.C.  1818(b) (1). If upon hearing, the agency
finds that any violation specified in the notice of
charges has been established, the agency may order
the institution or party to cease and desist from the
violation. Accordingly, the Director is authorized to
issue a cease-and-desist order upon finding that Re-
spondent entered into a Net Worth Maintenance
Agreement and violated the terms of such agreement.
In addition, upon a finding that an institution-
affiliated party acted in reckless disregard of the law
or was unjustly enriched by his misconduct, the OTS
may also order the respondent to take affirmative ac-
tion to correct the condition resulting from any such
violation. 12 U.S.C.  1818(b) (1) and (6); see also
Wachtel  v. OTS, 982 F.2d 581 (D.C. Cir. 1993); Akin
v. OTS,  950 F.2d 1180 (5th Cir. 1992).

C. Respondent's Violation of the Net Worth
Maintenance Agreement

The facts of this case amply demonstrate that the
agency imposed, and Respondent expressly assumed,
a commitment to maintain the net worth of the As-
sociation for a period of five years. Here, Respond-
ent entered into an express "written agreement" un-
der  1730(e) which is enforceable by means of a

---------------------------------------- Page Break ----------------------------------------

54a

cease and desist order.20 The Association fell below
its net worth requirement as of September 30, 1989,
thus triggering Respondent's default under section
11 of the Agreement. Pursuant to section V(A) 1 of
the Agreement-which required Enforcement to no-
tify Respondent in the event of a default-Enforce-
ment first informed Respondent of a default on No-
vember 14, 1989. By letter of that date, Enforcement
informed Respondent that he was then responsible to
make a capital infusion in the amount of 69.9 percent
of a capital deficiency of $152,000. The letter also
stated that Respondent was "also responsible for pro-
viding the institution with additional capital if the
regulatory capital deficiency reoccurs." By letter
dated November 30, 1989, Respondent acknowledged
receipt of the November 14 notice but failed to indi-
cate whether he would infuse capital as requested.
OTS notified the Respondent again in January that
the Association was capital deficient and that he was
obligated under the Agreement to infuse capital.
OTS again notified Respondent in April of 1990 of
its calculations of the amount of the deficiency. 21.  Re-

___________________(footnotes)

20 Cf. Wachtel, 982 F.2d at 584 n.2 ("OTS . . . has not
pointed to any representation by the petitioners that affirmed
an obligation enforceable through a cease and desist order as
opposed to a less formal obligation.")
21 The agency is not required to provide the Respondent
with multiple, updated notices of the deficiency calculation.
Rather, under the Agreement, the OTS is responsible for
notifying Respondent in the event of a default. See Section
V(A); see also In re Akin, OTS Decision and Order No. AP
90-4009 (December 24, 1990), aff'd sub nom. Akin v. OTS',
950 F.2d 1180 (5th Cir. 1992).
Nor is the OTS's April, 1990 letter (OTS Exhibit 21) in-
admissible as part of an admission made during settlement

---------------------------------------- Page Break ----------------------------------------

55a

spondent did not make the requisite capital infusion.
After Respondent failed to honor his commitment, the
institution was placed in receivership.
Under the applicable precedent, it is clear that a
violation of a written agreement occurs when a party
refuses to make payment pursuant to the terms of
that agreement. See Akin, 950 F.2d 1180. Cf. In re
Firstcorp, OTS Decision and Order No. Ap 92-125
at pp. 15-16 (November 20, 1992) (violation of con-
dition imposed in writing occurs when party refuses
to honor commitment). The Acting Director con-
cludes that Respondent, having failed to make the
requisite capital infusion as he committed to do un-
der the Net Worth Maintenance Agreement, is in con-
tinuing violation of a written agreement and that a
cease and desist order may properly issue under sec-
tion 8(b) of the FDIA.22

___________________(footnotes)

negotiations. First, the letter meets the regulatory standards
of admissibility under 12 C.F.R.  509.24(a). Moreover, it
is likely admissible even under the Federal Rules of Evidence
because it was not a statement made by Respondent. Exclud-
ing the evidence on such grounds does not further the pur-
poses of the rule, which is to foster settlement of actions where
possible. See note to F.R.E. 408. Indeed, the cases cited by
Respondent in support of exclusion reflect attempts by a de-
clarant to exclude admissions made in furtherance of settle-
ment, which were then used against the declarant at trial.
Here, no statement has been made by the Respondent under
the guise of settlement which the OTS is seeking to use against
the Respondent as an admission at trial.
22 The fact that the Association is in receivership is not a
defense to Respondent's compliance with the Agreement, be-
cause the injury that the Net Worth Maintenance Agreement
was intended to prevent has in fact already been sustained
by the insurance fund and, ultimately, the taxpayer. See
Akin, 950 F.2d at 1185; In re Firstcorp, 973 F.2d at 249.

--------------------------------------- Page Break ----------------------------------------                     

 56a

1. Respondent's Control Defenses

Respondent argued before the ALJ and repeats in
his exceptions that the Net Worth Maintenance
Agreement cannot now be enforced against him be-
cause, at least as of October, 1988, he could no longer
be deemed to have "actual control" of the institution
in light of the following intervening events.
First, the FHLBB imposed a Supervisory Agree-
ment on Great Life in 1986-during the first full
year of its operation. The Supervisory Agreement
was imposed by the FSLIC in lieu of enforcement ac-
tion and made the Association subject to, inter alia,
operating restrictions with respect to commercial real
estate loans, a reduction of total liabilities, a require-
ment of compliance with the loans-to-one-borrower
regulation, and the development of underwriting
standards and loan documentation procedures. In ad-
dition, the FHLBB designated the Association as a
"troubled institution" in January 1989 and imposed
additional restrictions on the institution.
Second, in October 1988, Respondent-in apparent
resolution of another, independent FHLBB enforce-
ment proceeding against Respondent regarding his in-
volvement with another thrift entered into an under-
taking with the FSLIC. The undertaking, to which
Respondent consented, removed Respondent from the
board of directors of that thrift and prohibited him
from voting for a director in any thrift in which he
owned stock without first obtaining clearance from
the FHLBB.
Finally, in September 1988, the state of Florida
notified Respondent and the institution that Respond-
ent was specifically prohibited from obtaining access
to confidential Association files. Under section 665.042

---------------------------------------- Page Break ----------------------------------------

57a

of the Florida Savings and Loan Associations Code,
dissemination of such materials to individuals other
than Association directors, officers and employees,
with limited exceptions, is punishable as a felony.
See Fla. Stat. Ann. 665.044 (West 1984),
The Director rejects Respondent's novel proposition
that the imposition of appropriate  supervisory sanc-
tions by authorities of competent  judisdiction extin-
guished his obligation to comply with the Net Worth
Maintenance Agreement, First, the statutory and reg-
ulatory definitions of "control" at the time Respondent
executed the Net Worth Maintenance Agreement ex-
tended to those who had the ability to vote 25 per cent
or more of the thrift's stock. See 12 U.S.C. 1730 (q)
(9) (1984); 49 Fed. Reg. 41238 (October 22, 1984),
codified at 12 C.F.R. 571.6 (1985); accord FHLBB,
Annotated Manual of Statues and Regulations at
"Par."  1048, 1436 (5th ed. Jan. 1985) . See  also In re
Firstcorp, 973 F.2d at 250. From the institution's
inception, it is undisputed that Respondent owned
69.9 per cent of the Association's outstanding voting
shares and he did not offer evidence that he was pre-
vented from voting those shares or that he disposed
of shares so that his ownership fell below 25 per
cent. Accordingly, as he was aware when he executed
the Net Worth Maintenance Agreement in 1985, Re-
spondent was deemed to "control" the Association by
virtue of his stock ownership as a matter of law. 23.

___________________(footnotes)

23 The Acting Director notes that the record suggests that
Respondent did in f fact exercise a great deal of influence over
the institution. A September 23, 1988 letter from the FHLBB-
Atlanta to the Association's Board of Directors (Respondent's
Exhibit 315) states that "[t]he level of influence exerted by
majority shareholder Robert Rapaport the management
and the board of directors of Great Life is such that Mr. Rapa-
port was acting as a de facto director in violation of the

---------------------------------------- Page Break ----------------------------------------

58a

Thus, arguments based on Respondent's purported
lack of "actual control" are irrelevant. Even if they
were not, however, Respondent has not shown that
the Supervisory Agreement-which was imposed by
the FHLBB to correct the Association's failure to
comply with thrift laws, as an alternative to enforce-
ment action-actually interfered with any "control"
he exercised. In Firstcorp, the Fourth Circuit re-
jected the argument that because a thrift was operat-
ing under supervisory restrictions, the holding com-
pany had necessarily lost "control" of the institution.
973 F.2d at 250-251. Similarly, the Respondent here
did not lose "control" of the Association because the
FHLBB took supervisory action in an attempt to en-
sure that the institution was being operated in a safe
and sound manner.
Nor has Respondent demonstrated that the 1988
enforcement undertaking ever actually interfered with
his voting rights in the Association. Respondent was
not deprived of his right to vote; he was merely re-
quired to obtain the FHLBB's approval before voting
for any member of the board of directors of an in-
sured institution in which he owned stock. This re-
quirement did not substantially change the restric-
tion that Great Life was operating under because-
even independent of the undertaking-the OTS had
the supervisory authority to approve candidates for
the Association's board of directors for a period of
three years after the first fiscal year of the Associa-
tion's operation. See 12 C.F.R.  571.6(d). At the
time the enforcement action was taken against Re-

___________________(footnotes)

Management Interlocks Act." It is the fact of the amount
of his stock ownership, however, that is material for pur-
poses of the Agreement.

---------------------------------------- Page Break ----------------------------------------

59a

spondent in October, 1988, he did not have an un-
fettered right to select the composition of the board
of directors. 24. Respondent's rights thus were not,
even in theory, materially changed by the "voting
restriction." Finally, Respondent makes no attempt
to demonstrate that he ever tried to vote-and that
such attempt was actually restricted by the FHLBB
or the OTS-after the consent was executed in 1988.
Nor did he present any evidence demonstrating that
he was prevented from receiving proxy solicitations
or other shareholder materials.
Respondent's violation of the Florida state statute
is not probative of any issue in this case. The fact
that the state of Florida determined that Respondent
had improperly been given access to confidential, in-
ternal Association documents (in violation of Florida
law), and ordered the institution to restrict Respond-
ent's access thereto, demonstrates little more than the
state's legitimate concern to enforce its banking laws.
Its mandate to the Association and Respondent to
obey the law are not relevant to the issue of control
in this case, which is established by proof of 25 per
cent ownership of an institution's outstanding stock.
   
2. Respondent's Mate Law Contract De-
fenses

Respondent has argued that because the Net Worth
Maintenance Agreement states on its face that it is

___________________(footnotes)

24 Even today, the OTS must pass on the qualification of
directors of certain thrifts, including de novos. See 12 U.S.C.
1831i; see also 58 Fed. Reg. 45421 (August 30, 1993), to be
codified at 12 C.F.R.  574.9. As these provisions make clear,
because of the significant, federal interest, and the existence
of federal deposit insurance, no owner of thrift stock has an
unrestrained right to elect directors.

---------------------------------------- Page Break ----------------------------------------

60a

a contract under the laws of the state of Florida, he
is entitled to assert state common law defenses against
the OTS, such as failure of consideration, failure to
mitigate damages, unclean hands and failure to act
in good faith. He also argues that the Net Worth
Maintenance Agreement, as a contract, must be sup-
ported by consideration and that there was no con-
sideration for the Agreement.
First, Respondent wholly ignores the "written
agreement" language in the Agreement, despite the
fact that the OTS is seeking to enforce the Agree-
ment in its capacity as primary federal regulator.
As Akin. makes clear, the obligations of a respondent
in such a case are governed by the federal enforce-
ment statutes as construed by the federal courts. See
Akin, 950 F.2d at 1183-84. State contract law is
wholly irrelevant for this purpose. See Groos Nat'l
Bank v. Comptroller of the Currency, 573 F.2d 889,
896 (5th Cir. 1978). Even the Agreement itself
makes clear that "[a]ny and all rights or remedies
available to the FSLIC under the terms of this Agree-
ment shall be in addition to, and not in lieu of, any
other rights or remedies available to the FSLIC in
law or equity." See Section VI. Thus, the Agreement
expressly contemplates that the FSLIC may take ac-
tion against the Respondent independent of its status
as a party to the Agreement. Accordingly, an action
by the OTS seeking enforcement of the Agreement in
the exercise of the OTS's regulatory authority is
properly governed by federal law.
Nor can the obligor on a net worth maintenance
agreement bypass the banking enforcement statutes
by asserting, under the language of the net worth
maintenance agreement, that the document may be
construed only as a contract. This interpretation,

---------------------------------------- Page Break ----------------------------------------

61a

which gives no meaning-to the "written agreement"
language of the Net Worth Maintenance Agreement,
is incorrect as it wholly ignores the regulatory au-
thority of the federal banking agencies. Moreover,
Respondent's interpretation is even inconsistent with
general principles of contract construction, which dis-
favor interpretations that deprive a particular provi-
sion of any meaning.
Respondent has offered no reasonable reconciliation
of these two clauses. In contrast, the Acting Direc-
tor's conclusion does not render meaningless the
"contract" language in the Net Worth Maintenance
Agreement. There may be circumstances where state
contract law may properly speak to the rights of the
parties or their successors because federal law does
not. For example, the Agreement provides that in
the event of an uncured default, the acquirer must
convey his shares of Association stock to the FSLIC.
Particularly in the case of a third party purchaser,
there may be an issue of ownership rights governed
by state law. This is not the posture of the case be-
fore the Acting Director, however. 25. The Director
declines to interpret the Agreement against the
weight of authority concerning the ability of a fed-
eral regulatory agency to take enforcement action
under federal law arid finds that state contract law
does not govern the resolution of this ease.

___________________(footnotes)

25 Nor is the issue of whether the FDIC or the Resolution
Trust Corporation ("RTC") may enforce the Agreement.
The Acting Director notes, however, that concurrent juris-
diction among several of the banking agencies for related
purposes is part of the overall scheme of the banking laws.
See, e.g., In re Keating, OTS Decision and Order No. AP 91-
20 (May 11, 1991).

---------------------------------------- Page Break ----------------------------------------
        
62a

Notably, even if Respondent were permitted to raise
his state contract law defenses-failure of considera-
tion, failure to mitigate damages, unclean hands and
failure to act in good faith-he has not sustained
his burden of proof on any of them. With respect
to his failure of consideration defense, Akin and
Groos make clear that consideration is not necessary
to sustain a written agreement with the federal gov-
ernment; if it were, however, there is sufficient con-
sideration in the fact that Respondent obtained in-
surance from the FSLIC, and the FHLBB obtained
a personal financial commitment from Respondent.
As to the remaining defenses, the ALJ correctly
concluded that equitable defenses against the federal
government, acting in its sovereign capacity, are
strictly limited. 26. See SEC v. Electronics Warehouse,
Inc., 689 F. Supp. 53, 73 (D. Corm. 1988) citing
Schweiker v. Hansen, 450 U.S. 785, 788 (1981) and
Heckler v. Community Health Services, 467 U.S. 51,
60 (1984). Among other things, Respondent must
show that "the agency's misconduct [was] egregious
and the resulting prejudice to the defendant [rose]
to a constitutional level." Id. The record is devoid of
any such evidence. 27. The Acting Director rejects Re-

___________________(footnotes)

26 For example, Respondent has not demonstrated entitle-
ment to the affirmative defense of failure to mitigate dam-
ages. See, e.g., FSLIC v, Burdette, 718 F. Supp. 649, 663-64
(E.D. Term. 1989). Nor does the OTS owe Respondent a duty
of good faith. See FSLIC v. Locke, 718 F. Supp. 573, 582
(W.D. Tex. 1989). Similarly, Respondent's defense of unclean
hands must fail. FDIC v. Baker, 739 F. Supp. 1401, 1404-
1407, 1409 (C.D. Cal. 1990).
27 Respondent's arguments in this regard also assume that
the regulators are responsible, at least in part, for the Asso-
ciation's losses. This assumption has been rejected by the

---------------------------------------- Page Break ----------------------------------------
         
63a

spondent's reliance on state law cases between private
parties as inapposite.
   
3. Respondent's Regulatory Defenses

Respondent claims that the OTS has not made a
case for a cease and desist order because, inter alia,
the Net Worth Maintenance Agreement lapsed by
regulatory amendment as of November 30,.1989. See
54 Fed. Reg. 49411, 49418, 49674-75 (November 30,
1989) (amending 12 C.F.R.  571.6). This amend-
ment stated that controlling shareholders of state-
chartered thrifts would no longer be required to exe-
cute net worth maintenance agreements as part of
the application for insurance. Enforcement responded
that this amendment was to be applied prospectively,
not retroactively, to de novo institutions. The ALJ
did not consider whether the regulation lapsed by
amendment prior to enforcement because the issue
had not been before him.
The Acting Director concludes that Respondent's
pre-existing net worth maintenance obligation is un-
affected by this amendment. Respondent undertook,
pursuant to 12 C.F.R.  571.6(d) (iv) and any suc-
cessor regulation to maintain the Association's net
worth for a period of five years. The revision to sec-
tion 571.6 (4) that Respondent cites was explicitly
declared by the agency to have only prospective ap-
plication: "Section 571.6 is being revised to apply
only to applications for de novo federal charters and
no longer to apply to application for FSLIC insurance
of accounts for de novo state-chartered institutions."
54 Fed. Reg. at 49418 (emphasis added). Thus, as

___________________(footnotes)

Supreme Court. See United States v. Gaubert, 499 U.S. 315
(1991).

---------------------------------------- Page Break ----------------------------------------

64a

the amendment changed only the application process
for future agreements, not existing net worth main-
tenance agreements, it is clear that the revision was
intended to have only prospective effect. See Kaiser
Aluminium & Chem. Corp. v. Bonjorno, 494 U.S.
827 (1990) (where intent as to retroactive or pro-
spective application is clear, it governs). Accord-
ingly, this regulatory amendment does not relieve
Respondent from his obligation under the Net Worth
Maintenance Agreement. 28.

___________________(footnotes)

28 The Acting Director also rejects Respondent's claim that
the successor capital regulations to 12 C.F.R. 563.13 were
issued without notice and comment. On December 15, 1988,
the FHLBB issued a risk-based capital proposal which it
promulgated for a 90-day public comment period. See 54
Fed. Reg. 46845, 46846, (November 8, 1989). The FHLBB
held public hearings on the Proposal on February 9 and 10,
1989. Id. Because FIRREA became effective August 9, 1989,
the OTS reopened the comment period on the proposal from
September 12 to 22, 1989, in order to allow for additional
public comment based on the capital changes mandated by
FIRREA. Id.
The regulatory savings provision of FIRREA. section
401 (h), provides that orders, resolutions, determinations and
regulations of the FHLBB in effect on August 9, 1989 were to
remain in effect until modified, terminated, set aside or super-
seded in accordance with applicable law by the appropriate
successor agency. AS the OTS noted when it adopted the new
capital regulation as an interim final rule in November, 1989,
the FHLBB's "notice of proposed rulemaking on regulatory
capital is such a resolution and the [OTS] has succeeded to
that notice." Id, Accordingly, the public was given notice and
an opportunity to comment on the proposed regulatory revi-
sions.

---------------------------------------- Page Break ----------------------------------------

65a

D. Right to a Jury Trial

The Acting Director rejects as meritless Respond-
ent's argument that he was denied the right to a
jury trial under the Seventh Amendment. See, e.g.,
 Akin, 950 F.2d at 1186. The Acting Director's de-
termination also comports with Supreme Court ju-
risprudence, which instructs that the right to a jury
trial under the Seventh Amendment attaches only to
those civil actions recognized under eighteenth-
century common law and not to claims based on
"public rights." See Granfinanciera, S.A. v. Nord-
berg, 492 U.S. 33, 42 & n.4 (1989); Atlas Roofing Co.
v. Occupational Safety & Health Review Comm'n,
430 U.S. 442, 454-55 (1977). The instant proceed-
ing is founded on a section of the Federal Deposit
Insurance Act-for violation of a written agreement
with the agency-not on any cause of action which
is grounded in eighteenth-century common law. Un-
der the weight of authority, Respondent is not en-
titled to a jury trial.

E. Unjust Enrichment

The Acting Director finale that Respondent has been
unjustly enriched by his violation of the Net Worth
Maintenance Agreement. See In re Akin, OTS De-
cision and Order No. AP 90-4009 (December 24,
1990), affirmed sub nom. Akin v. OTS, 950 F.2d
1180 (5th Cir. 1992) and In re Akin, (on remand),
OTS Decision and Order No. AP 92-138 (November
25, 1992) .
In Akin, the respondent entered into a net worth
maintenance agreement with the FSLIC, in lieu of
enforcement action, which required him to maintain
the net worth of TexasBanc Savings FSB ("Texas-

---------------------------------------- Page Break ----------------------------------------
        
66a

Bane" ) at the level required by section 563.13 (b) or
any successor regulation thereto and to infuse addi-
tional capital if the net worth of TexasBanc fell be-
low its minimum net worth requirement. Akin, how-
ever, failed to infuse capital in the amount of the
deficiency. The OTS concluded the appropriate rem-
edy for Akin's violation of the net worth mainte-
nance agreement was a cease and desist order requir-
ing Akin to infuse capital into TexasBanc. The OTS
also concluded that Akin had been unjustly enriched
by retention of funds due to TexasBanc when a de-
fault was triggered under the agreement. The Fifth
Circuit upheld the OTS's enforcement of the net
worth maintenance agreement.
Like Akin, Respondent voluntarily entered into
the Agreement to obtain a benefit from the federal
government. In Akin, the purpose was to avoid en-
forcement consequences; here, Respondent did so as
a majority shareholder so that the Association could
commence operations enjoying the benefits of federal
insurance. Like Akin, Respondent refused to honor
his commitment when the institution's capital fell.
Like Akin, Respondent's failure to infuse capital
contributed to the demise of the Association. Finally,
like Akin, Respondent has been unjustly enriched by
his failure to comply with the Agreement, by retain-
ing funds or property that belong to the Association
while the Association received the benefits of deposit
insurance. 29.

___________________(footnotes)

29 The ALJ concluded that Respondent was unjustly en-
riched by receiving the benefits of federal insurance without
honoring the net worth maintenance agreement (Recom-
mended Decision at p. 2). Specifically, the ALJ found that
Respondent had been unjustly enriched "since, as in Akin,

---------------------------------------- Page Break ----------------------------------------

67a

Respondent's attempts to distinguish Akin are not
persuasive. 30. Accordingly, the Acting Director con-
cludes that the appropriate remedy for Respondent's
violation of the written agreement is enforcement of
the Agreement and imposition o-f the requirement
that Respondent infuse capital into the Association
in receivership.

[F.] The Appropriate Remedy

1. The Amount of Respondent's Liability

The proper amount of Respondent's liability under
the Agreement, however, is also a matter of dispute.
The ALJ adopted Enforcement's argument that the
loan classifications were proper under generally ac-
cepted accounting principles.
Respondent asserts that he is entitled to an "offset"
in the approximate amount of $1.5 million, on the
theory the OTS applied improper accounting stand-
ards in its evaluation of certain loans during the
1989 examination of Great life. In challenging the
OTS's classifications of two disputed loans (Pem-
broke and Louisville), Respondent also challenges
the deference the ALJ accorded the examiners' testi-
mony, and the admissibility of certain evidence re-
flecting those conclusions.
Because it appears that the OTS examiners applied
the proper criteria under the facts of this case, the

___________________(footnotes)

he has unlawfully retained funds owed to Great Life in re-
ceivership." (Recommended Decision at pp. 50-51). See also
ALJ's Conclusion of Law No. 11.
30  For example, it is not significant that Respondent, unlike
Akin, was not an officer or director; rather, what is significant
is that he is an institution-affiliated party who owned more
than 25 per cent of the Association's stock.

---------------------------------------- Page Break ----------------------------------------
          
68a

Acting Director finds that the ALJ properly accorded
deference to the OTS examiners' determinations, as
reflected in documentary evidence and oral testimony
at hearing, in concluding that the subject loan classi-
fications were properly taken at the time of the ex-
amination. The Acting Director departs from the
ALJ's Recommended Decision, however, insofar as
the ALJ failed to consider evidence adduced (in con-
nection with certain offsets sought in connection with
the loan to Pembroke Development Corporation} in
calculating the amount of liability under 12 U.S.C.
1818(b) (6)-an issue which goes beyond the pro-
priety of the loan classification. Based cm the evi-
dence in this record, the Acting Director concludes
that Respondent is entitled to his pro-rata share of
two offsets in connection with the Pembroke loan in
the amounts of $485,587 31. and $100,000 respec-
tively-equaling $339,425 and $69,900. The Acting
Director affirms the decision of the ALJ that Re-
spondent is not entitled to an offset in connection with
the Louisville loan.
    
a. The Examiners' "Expert" Status

Respondent has claimed that the Examiner-in-
Charge ("EIC") of the 1989 examination does not
qualify as an expert because he had been employed
as a bank examiner for only two years and had served
as EIC for only two examinations. Respondent also
asserts that the EIC was biased and thus his conclu-
sions must be dismissed.

___________________(footnotes)

31 This number is derived by subtracting the OTS's original
fair value estimation of $2,464,413 from the OTS's revised fair
value estimation of $2,950,000. See c. i., below.

---------------------------------------- Page Break ----------------------------------------

69a

It is well settled that bank examiners are "experts"
on the subject of loan classifications, and their pre-
dictive judgments should generally be given deference
in subsequent administrative proceedings. See Sun-
shine State Bank v. Federal Deposit Ins. Corp., 783
F.2d 1580, 1582-83 ( llth Cir. 1986). Cf. Franklin
Savings Ass'n v. OTS, 934 F.2d 1127, 1146 (lOth
Cir. 1991), cert. denied, - Us. -, 112 S. Ct.
1475 (1992) (predictive judgments are particularly
within expertise of agency].
The presumption of deference is rebuttable, how-
ever. To determine if the examiners' predictive con-
clusions regarding loan classifications should be ac-
corded deference, the ALJ should analyze:  (1)
whether the facts the examiners relied on were er-
roneous and (2) whether the conclusions the exami-
ners arrived at were reasonable in light of the evi-
dence. See, e.g., Sunshine State Bank, 783 F.2d at
1582; In the Matter of Anderson County Bank, Clin-
ton, Tennessee, Dkt. No. FDIC 89-235a'" (Prentice
Hall FDIC Enforcement Decisions and Orders dated
May 21, 1991).
As discussed in greater detail with respect to the
specific classifications below, the Acting Director con-
cludes that the ALJ properly evaluated this record
under the Sunshine test and appropriately accorded
deference to the conclusions of the examiners.
Respondent urges, in lieu "of the test expressly
stated in Sunshine, that because the EIC supervising
the Association's 1989 examination did not have as
much experience as the Sunshine State Bank exami-
ners, he is not entitled to deference. Such an inter-
pretation distorts the import of Sunshine. The EIC
received specific training, has thoroughly reviewed
and is knowledgeable concerning the relevant loan

---------------------------------------- Page Break ----------------------------------------
        
70a

files at issue and, in his occupation as a thrift ex-
aminer, deals with examination issues on a daily
basis. 32. Under the Sunshine standard, seniority alone
is not dispositive: rather, the analysis hinges on
whether there is error in the examination at the time
it was conducted, Once it is established that the ex-
aminer is in fact a professional regulatory examiner,
who has been specially trained for that employment,
and who possesses expertise on the loan classifications
based on the examiner's familiarity with the loans
at issue, the issue of extent of experience must be
subordinate to an evaluation of whether demonstrable
error was committed in the examination process,
Accordingly, the examiner's conclusions may be prop-
erly questioned not by reference to seniority alone
but by either demonstrating that the information
upon which the examiner relied was erroneous; or
that his conclusions did not flow from the facts.
Thus, to the extent that Respondent attacks the
examiners' conclusions herein, the Director finds that
Respondent must attack them directly under the Sun-
shine test, not collaterally. 33.

___________________(footnotes)

32 Respondent implies that because the EIC is not a lawyer
or CPA, he cannot be a qualified examiner. A bank examiner's
expertise, however, need not extend to areas such as litigation,
bankruptcy or appraisals. In the Matter of Anderson County
Bank, Clinton, Tennessee, Dkt. No. FDIC 89-235a (Prentice
Hall FDIC Enforcement Decisions and Orders dated May 21,
1991).
33 Independent of the Sun-shine analysis, Respondent also
claimed that the OTS's accounting expert does not qualify
as an expert because he had not yet received the results of
his CPA exam. The Director rejects this argument. The
OTS's accountant, through the course of his employment with
the OTS, had substantial accounting expertise in the area
of loan classifications.

---------------------------------------- Page Break ----------------------------------------

71a

b. Admissibility of the 1989 Report of
Examination and related documents

The 1989 Report of Examination, the examiners'
workpapers and the District Appraiser's reviews re-
flect the facts relied on, and the conclusions drawn,
by the examiners regarding the loan classification that
Respondent has sought to put at issue. Respondent
contends that the report is inadmissible because it is
neither reliable nor fair, as it is allegedly based on
hearsay. He also claims that he was denied the op-
portunity to cross-examine, impeach and rebut. the
information contained in the examination report, the
underlying examiners' notes and the OTS District
Appraiser's reviews.
The ALJ correctly-rejected these arguments. While,
as discussed in further detail below, Respondent has
demonstrated that he is entitled to two additional
offsets on the Pembroke loan based on the evidence
in the record, he has not shown that the papers relat-
ing to the 1989 examination-are inadmissible. First,
the Federal Rules of Evidence do not apply in this
proceeding. See, e.g., Richardson. v. Pearales, 402 U.S.
389, 400 (1971) (hearsay may be admissible in ad-
ministrative proceedings); Hoska v. United States
Dep't of the Army, 677 F.2d 131, 138 (D.C. Cir.
1982) (hearsay, if relevant and material, is admis-
sible in administrative proceedings) ; Director, OTS
v. Lopez, 960 F.2d 958, 964 n.11 (1992) (it is well-
settled that Federal Rules of Evidence do not apply
in administrative proceedings ). Accordingly, the
Acting Director need not reach the issue of what ma-
terials would be admissible under the Federal Rules
of Evidence. Under the procedural rules applicable
to this action, only "[i] rrelevant, immaterial or un-

---------------------------------------- Page Break ----------------------------------------

72a

duly repetitious evidence shall be excluded." 12
C.F.R.  509.24(a) (1990); see also 5 U.S.C. 556
(d) (1988) 34.
Second, the Report of Examination, the examiner's
workpapers and the District Appraiser's reviews do
not fail under any of these standards. They reflect
the agency's findings concerning the specific loan clas-
sifications at issue. Accordingly, their admission was
not error. The ALJ correctly concluded that these
materials were fair and reliable. As the ALJ found:

A report of examination, such as OTS EX 33,
is the fundamental tool through which federal
regulatory agencies assess the safety and sound-
ness of federally insured depository institutions.
These agencies make supervisory decisions in re-
liance upon these examination reports which con-
tain information gathered in accordance with es-
tablished regulatory and supervisory practices.

Recommended Decision at 39. The workpapers and
District Appraiser's reviews underlying the examina-
tion report are also fair and reliable. The Acting
Director affirms the ALJ's conclusion that such docu-
ments are admissible in this proceeding.

Even if admissible, however, the question remains
concerning the appropriate weight to be accorded
these materials. -Because these materials reflect the
facts and conclusions summarized by the examiners,
it appears appropriate to apply the Sunshine stand-
ard to determine the deference to be accorded the
examiners' opinions. As discussed more specifically

___________________(footnotes)

34 Under the revised Procedural rules, evidence need only
be "relevant, material, reliable, and not unduly repetitive."
12 C.F.R.  509.36(a) (3) (1993).

---------------------------------------- Page Break ----------------------------------------
        
73a

below, the Director finds generally that such docu-
ments reflect conclusions that are due deference under
Sunshine.
Moreover, as noted by the ALJ, Respondent has
had ample opportunity throughout the hearing proc-
ess to challenge the accuracy of these documents. He
has not, however, demonstrated that such documents
are irrelevant, immaterial, repetitive unreliable or
not credible. Accordingly, the ALJ properly admitted
these documents into evidence.
    
c. Entitlement to Offsets

The Acting Director makes the following additional
findings and conclusions with respect to Respondent's
claim that he is entitled to offset the amount of his
liability under the Net Worth Maintenance Agree-
ment. As noted above, the ALJ did not permit any
offset for either of the two disputed loans. The Act-
ing Director rejects that conclusion and, as discussed
below, will permit a $409,325 offset in connection
with the Pembroke loan.
      
i. Pembroke Loan
       
(a). Loan Terms

In January, 1986, the Association granted a loan
to Pembroke Development Corporation ("PDC") for
the acquisition, development and construction of a
86,000 square foot self-storage facility in Delray
Beach, Florida. As of September 30, 1989, the As-
sociation had a recorded investment of $3,305,607 in
the loan. The loan was originally supported by an
appraisal apparently prepared in October, 1985, which
valued the property at $3,530,000.

---------------------------------------- Page Break ----------------------------------------
          
74a

The loan was secured by a guarantee of collection 35.
executed by Albert Miller ("Miller"), the owner of
PDC. Miller's personal financial statement reflected
approximately $12.2 million in net worth; approxi-
mately $8.4 million of this amount constituted the
value of his personal residences and his interest in
PDC.      

(b). History

As the 1989 Report of Examination notes, this loan
had a troubled history since at least 1987. During the
period May 1987-May 1988, one half of the payments
were at least 30 days delinquent. Among other things,
the leasing of the facilities was lower, and the rent
obtained lower, than anticipated, which resulted in
the property's failure to produce sufficient income
to service the debt. The loan was subject to special
mention in the May 9, 1988, Report of Examination,
due to low borrower equity and an occupancy rate of
approximately 35 percent. Based on the borrower's
difficulties in repayment, the debt was restructured in
the spring of 1989. As part of the restructuring Mil-
ler agreed to waive a potential lender liability claim
against the institution. Nonetheless, the borrower
failed to make any payments at least as of August
28, 1989. The Association commenced foreclosure
proceedings on October 3, 1989. The OTS's 1989 ex-
amination began shortly thereafter.
In connection with the examination, on November
6, 1989, the OTS-Atlanta District Appraiser reviewed
the Association's October, 1985 appraisal of the prop-

___________________(footnotes)

35 The Guarantee of collection provided that the Association
would have to first seek repayment from the PDC, then com-
mence foreclosure proceedings on the collateral before seeking
repayment from Miller.

---------------------------------------- Page Break ----------------------------------------

75a

erty and found it deficient in a number of respects.
First, the appraisal-which had been prepared before
the property had been developed-did not take into
consideration current property values or actual in-
come production. . The District Appraiser criticized
the appraisal because, among other things, it failed
to include significant property estimates and a ra-
tionale supporting certain of the appraiser's conclu-
sions. The District Appraiser also concluded that the
appraisal in the Association's files was "an inappro-
priate tool for underwriting a loan because of the
hypothetical value estimate that was reported in it."
To better ascertain fair value, the District Ap-
praiser calculated a stabilized operating statement
based on income for the property and expenses. which
were based on similar facilities. The District Ap-
praiser concluded that the fair value of the property
was $2,464,413, and recommended rejecting the ear-
lier appraisal as deficient.
As a result of the examination, the OTS required
that $841,194 be classified as a loss, which the in-
stitution did under protest on March 23, 1990. The
Association apparently acquired the property on
March 5, 1990, as a result of foreclosure and hired
a property manager.
On April 3, 1990, a second appraisal was per-
formed on the property, which concluded that the
fair value of the property was approximately $3.15
million. Information supplied by the new property
manager showed that since March 1990, the amount
of rent received increased significantly, suggesting
that "the borrower may have skimmed cash from the
receipts." In an appraisal review dated May 21, 1990
(OTS Exhibit 37) the District Appraiser recom-
mended that this information be brought to manage-

---------------------------------------- Page Break ----------------------------------------

76a

ment's attention so the institution might pursue legal
proceedings against the borrower if appropriate. 36.
The Appraiser concluded, in light of the increased
income stream, that the April 3, 1990 appraisal was
reasonable and that the estimated fair value was
$2.95 million.   

(c). Respondent's Exceptions

Respondent contends that the OTS's loss calcula-
tion of $841,194-based on a fair value of the loan
at $2,464,413-is arbitrary and capricious since the
District Appraiser's May 21, 1990 appraisal review
concludes that, in light of the information discovered
after the Association took possession of the property,
a fair value of $2,950,000 was reasonable. Respond-
ent also asserts that the OTS's original fair value cal-
culation contained numerous significant omissions and
miscalculations. Respondent argues further that the
OTS loss classification misjudged the value of the liti-
gation against Miller, the guarantor, as reflected by
the fact that the Association ultimately recovered
$100,000 from Miller (despite the OTS's assumption
that the guaranty was of little value) ; and erred in
concluding that the guarantor's financial statements
were unreliable.

___________________(footnotes)

36 The record does not reflect, however, that the Association
took action against the borrower in this regard. Rather, the
record reflects only that the Association obtained a $100,000
settlement from Miller on his personal guaranty after the 1989
examination concluded. Nor does the record demonstrate
that the Association made further inquiry to determine
whether grounds existed for an independent action against
the borrower.

---------------------------------------- Page Break ----------------------------------------
        
77a
       
(d). Analysis

Under generally accepted accounting principles
("GAAP"), property in foreclosure must be accounted
for according to its fair value. See Statement of Fi-
nancial Accounting Standards ("SFAS") No. 15:
Accounting by Debtors and Creditors for Troubled
Debt Restructurings (1977). In light of the pending
foreclosure proceeding-which the Association had
instituted even before the 1989 examination was
commenced-the examiners determined that the Pem-
broke loan should be accounted for in accordance with
SFAS 15. The proper application of SFAS 15 was
confirmed by the OTS's accounting expert at the
hearing.
Under SFAS 15, when an asset is in" foreclosure
its fair value must be calculated, based on the infor-
mation available at the date of foreclosure, and com-
pared with the recorded investment receivable. Ac-
cordingly, the ALJ properly found that the Associa-
tion was required to recognized the $891,194 differ-
ence between the Association's recorded investment
and the fair value as a loss.
Respondent contends, however, that he is entitled
to offset against this amount by any subsequent al-
leged recovery by the institution, because Florida
state law, rather than GAAP, dictates the recovery
under the Net Worth Maintenance Agreement.
For regulatory and financial reporting purposes,
information obtained subsequent to the close of the
examination is not relevant for assessing the propri-
ety of loan classifications. See In re Anonymous,
Docket No. 84-100b (Prentice Hall FDIC Enforce-
ment Decisions and Orders dated September 16,

---------------------------------------- Page Break ----------------------------------------
        
78a

1985). 37. Nor are the loan classifications directed
against Great Life directly at issue here. Rather,
these issues are relevant herein only to the extent
they concern the appropriate measure of Respondent's
liability under the Net Worth Maintenance Agree-
ment.
Respondent argues that the April, 1990, appraisal
and OTS's evaluation thereof demonstrate that the
November 6, 1989, appraisal review was inaccurate
because it was based on information which was sub-
sequently rendered suspect. He argues that the fair
value of the property must be increased to the amount
of the later appraisal.
Among other things, section 8(b) (6) of the FDIA
permits the OTS to issue a cease and desist order
requiring an institution-affiliated party such as Re-
spondent to correct or remedy his violation of a writ-
ten agreement, including a requirement that he
"make restitution or provide reimbursement, indemn-
ification, or guarantee against loss" if he has been
unjustly enriched by his violation or acted in reckless
disregard of the law. 12 U.S.C.  1818(b) (6). See
Watchel v. OTS, 982 F.2d 581 (D.C. Cir. 1993).
The remedy assessed by the Director must bear a rea-
sonable relation to Respondent's violation of the
Agreement. Akin, OTS Decision and Order No. AP
90-4009 at p. 50. Here, the OTS's remedy must bear
a reasonable relation to Respondent's refusal to infuse

___________________(footnotes)

37 Indeed, even if the loan classifications were Properly
reviewable in this proceeding, the record reflects that the loss
classifications were properly made under GAAP. The record
does not reflect that the District Appraiser could reasonably
have been expected to obtain information concerning the re-
vised income stream earlier. Indeed, he relied on informa-
tion supplied by the Association, and the institution appar-
ently was not even aware of the alleged "skimming."

---------------------------------------- Page Break ----------------------------------------

79a

capital into the Association as required by the Agree-
ment.
The Acting Director concludes that the payment of
funds due under the Agreement is the appropriate
remedy. The Acting Director affirms the conclusions
of the ALJ that the Association had a capital de-
ficiency of $2,784,000 as of December 31, 1989; "In-
dependent of any offsets, Respondent would be liable
for 69.9 per cent of this deficiency-as the ALJ cal-
culated, an amount of $1,946,000.
Under the unique facts of this case, however, the
Acting Director is persuaded that Respondent is en-
titled to two offsets. The loss caused to the Associa-
tion in connection with the Pembroke loan is properly
calculated based on a fair value of $2,950,000. The
May 21, 1990 appraisal review prepared by the OTS
District Appraiser (OTS Exhibit 37) acknowledges
the fact that it was subsequently discovered, after the
close of the examination and before the appointment
of the receiver, that the fair value calculation should
be increased. Thus, the Acting Director concludes
that Respondent is entitled to an offset in the amount
of 339,425-representing 69.9 per cent of $485,587.
-reflecting the OTS's subsequent judgment on the
fair value of the Pembroke property.
The Acting Director also concludes that Respond-
ent is entitled to an additional offset in the amount
of $69,900-representing 69.9 percent of $100,000-
reflecting the recovery received under the guarantee
of collection against Miller. Enforcement has not suc-
cessfully rebutted Respondent's claim that the As-
sociation received this recovery prior to the appoint-
ment of the receiver. Accordingly, the Director finds
that Respondent is entitled to a total offset in  the
amount of $409,325.

---------------------------------------- Page Break ----------------------------------------

80a

ii. The Louisville Loan

(a). Loan Terms

On July 30, 1985, the Association entered into a
participation loan, structured by GermaniaBank,
FSB of Alton, Illinois, in connection with the develop-
ment of a hotel in Clarksville, Indiana. The Associa-
tion's interest was approximately $1.5 million, repre-
senting approximately a 12 per cent share in the
$11 million loan. The loan was secured by the hotel
property which had originally been appraised at
approximately $10.3 million. The remaining inter-
ests were held by GermaniaBank {which, as lead
lender, held a 60.15% interest) and Concord Liberty
Savings and Loan Association of Monroeville, Penn-
sylvania.     

(b). History

The loan had been in default since April, 1986.
Another appraisal was performed by an appraiser
for the institution in June 1989, at which time the
property was revalued at approximately $4.8 million.
The property was foreclosed on by, and came under
the possession of, GermaniaBank in October, 1989.
The Association commenced litigation against Ger-
maniaBank as the lead lender alleging, among other
things, fraud and breach of fiduciary duty, and
sought recovery of $2,500,000.  GermaniaBank
brought a counterclaim against the Association. The
Association's counsel opined in July 1989 that "[a]l-
though it is difficult to predict the outcome of pend-
ing litigation, it appears that Great Life Savings has
a reasonable likelihood of success . . . . " 38.

___________________(footnotes)

38 Both suits were ultimately dismissed, however, after the
RTC was later appointed receiver for both institutions. The
Association never received any recovery from GermaniaBank.

---------------------------------------- Page Break ----------------------------------------

81a

As a result of the 1989 examination, the OTS con-
cluded that the fair value of -the Association's inter-
est in the loan to be only $423,617, based on its
review of the June 1989 appraisal which valued the
hotel at approximately $4.8 million. The OTS Dis-
trict Appraiser determined that the appropriate fair
value of the hotel was $3,367,388, after subtracting
$750,000 for the cost of asbestos removal and the
costs of holding and selling the hotel over a two year
period. Accordingly, the Association's interest was
devalued to $423,617, and the OTS required the As-
sociation to classify the difference-$963,605-as a
loss. The Association did so under protest on March
23, 1990.     

(c). Respondent's Exceptions

Respondent contends that the OTS should have
accepted, at least, the $4.8 million appraisal instead
of the fair value of $3,367,388. If so, the loss to the
Association would have been a lesser amount, and
Respondent would be entitled to an offset. Respond-
ent challenges the OTS's valuation as arbitrary and
capricious, alleging it was based on a desk review 
and hearsay. Respondent also challenges the exami-
ners' accounting treatment of the Association's law-
suit against the lead lender, GermaniaBank.

(d). Analysis

After careful consideration of Respondent's argu-
ments, the Acting Director affirms the findings and
conclusions of the ALJ with regard to the Louisville
loan. As discussed above, the Acting Director accords
substantial deference to the reasonable conclusions
reached by the examiners. Sunshine, 783 F.2d 1580
(llth Cir. 1986). First, since the property was an

---------------------------------------- Page Break ----------------------------------------
        
82a

asset in foreclosure, the examiners properly relied on
SFAS 15 and the District Appraiser's review and
calculation-the only fair value calculation in the
record-which was also supported by the testimony
of the OTS's appraisal expert. Second, Respondent
has not shown that it was error for the examiners
not to have given more weight to an opinion prepared
by Price Waterhouse, the Association's outside audi-
tors, upon which they theorize that under GAAP,
the Association was entitled to defer any possible loss
on the loan until the litigation with GermaniaBank
was concluded. It was reasonable for the examiners
to conclude that the opinion was not persuasive, be-
cause it indicated the difficulties on settling on a re-
serve amount in light of the litigation, and even
notes that a conservative approach would be to cal-
culate a reserve based on the lowest appraised value
minus disposal costs. Moreover, given the fact that
any recovery awarded could not have been realized
for some period of time (a trial date was not sched-
uled until 1990 at the earliest), it was reasonable
for the examiners to determine that the possible re-
covery was too attenuated in time to be accounted
for presently as a gain contingency under GAAP.
The examiners' conclusion that the Association
failed to support a fair value estimation of its inter-
est in excess of $423,617 was thus reasonable in light
of the record evidence and should be accorded defer-
ence. The Acting Director affirms the ALJ's deter-
mination that Respondent is not entitled to an offset
in connection with the Louisville loan.

---------------------------------------- Page Break ----------------------------------------
         
83a

VI. CONCLUSION

Based on the record, the Acting Director finds that
Respondent's execution of the Net Worth Mainte-
nance Agreement rendered Respondent personally
liable for a portion of the Association's net worth,
if its net worth fell below required levels during the
five year term of the Agreement; that Respondent
violated the Net Worth Maintenance Agreement by
failing to infuse capital into the Association when
his obligation to do so under the Agreement was
triggered; and that Respondent's failure to infuse
capital as required under the Agreement unjustly
enriched him. Accordingly, the Acting Director
affirms the conclusions of the Administrative Law
Judge below with respect to Respondent's liability.
The Acting Director reverses the conclusions of
the Administrative Law Judge with respect to the
amount of Respondent's liability in connection with
offsets claimed in regard to the Pembroke loan,
totalling $409,325. Accordingly, the Acting Director
orders Respondent to pay $1,536,675 to the Associ-
ation in receivership.
All other exceptions lodged by Respondent and not
otherwise addressed are denied.

---------------------------------------- Page Break ----------------------------------------
        
84a
        
ORDER

Upon consideration of the entire record in this mat-
ter, including the Recommended Decision filed by the
Administrative Law Judge, the submissions of the
parties, and for the reasons set forth in the accom-
panying Decision, the Director of the OTS, pursuant
to his authority under 12 U.S.C.  1818(b), finds
that:

Respondent Robert D. Rapaport ("Rapaport") has
violated the Net Worth Maintenance Agreement he
executed in connection with the FHLBB's grant of
federal deposit insurance to Great Life Savings and
Loan Association ("Great Life"); and Rapaport was
unjustly enriched by his violation of the Net Worth
Maintenance Agreement.

IT IS HEREBY ORDERED THAT:

1. Rapaport shall cease and desist from violating
the Net Worth Maintenance Agreement;
2. On the effective date of this Order, Rapaport
shall contribute capital, in the amount of $1,536,675,
representing his liability under the Net Worth Main-
tenance Agreement, into Great Life, in a form accept-
able to the Resolution Trust Corporation ( "RTC")
as receiver;
3. The form of any capital that Rapaport contrib-
utes to Great Life under this Order must first be ap-
proved by the RTC. If, for any reason, the RTC does
not approve the form of capital contribution by Rapa-
port, such disapproval shall not relieve Rapaport of
his obligation to infuse capital into Great Life pur-
suant to this Order; and
4. The provisions of this Order are effective upon
the expiration of thirty (30) days after service of

---------------------------------------- Page Break ----------------------------------------

85a

this Decision and Order on Rapaport, and shall re-
main effective and enforceable, except to the extent
that, and until such time as, any provisions of this
Order shall have been stayed, modified, terminated, or
set aside by the Director or a reviewing court. Rapa-
port is hereby notified that he has the right to appeal
this Decision and Order to the appropriate United
States Court of Appeals within 30 days after service
of such Decision and Order. 12 U.S.C.  1818(h).

OFFICE OF THRIFT SUPERVISION

/s/ Jonathan L. Fiechter
JONATHAN L. FIECHTER
Acting Director

Date: Nov. 18, 1993

---------------------------------------- Page Break ----------------------------------------

86a
   
CERTIFICATE OF SERVICE

I hereby certify that on this 18th day of Novem-
ber, 1993, copies of the foregoing (1) Decision and
Order and (2) Order were served as indicated be-
low on the following:

By Hand Delivery

Arthur W. Leibold, Esquire
Frank J. Eisenhart, Esquire
Neil R. Crowley, Esquire
Dechert Price& Rhoads
1500 K Street, N.W., Suite 500
Washington, D.C. 20005

Douglas A. Anderson, Esquire
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552

By Overnight Delivery

Jeffrey D. Fisher, Esquire
West Tower-8th Floor
777 South Flagler Drive
West Palm Beach, Florida 33401

/s/ Melba McCannon
MELBA MCCANNON
for the Secretary
Office of Thrift Supervision

-------------------------------------- Page Break ----------------------------------------                     

No. 95-738

In the Supreme Court of the United States
OCTOBER TERM, 1995

UNITED STATES DEPARTMENT OF THE TREASURY,
OFFICE OF THRIFT SUPERVISION, PETITIONER

v.

ROBERT D. RAPAPORT

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

REPLY BRIEF FOR THE PETITIONER

CAROLYN J. BUCK
Chief Counsel
Office of Thrift Supervision
Washington, D.C. 20552

DREW S. DAYS, III
Solicitor General
Department of Justice
Washington, D.C. 20530
(202) 514-2217

---------------------------------------- Page Break ----------------------------------------

TABLE OF AUTHORITIES

Cases:                   

Page

Akin V. OTS, 950 F.2d 1180 (5th Cir. 1992) . . . . 3, 4, 5
Bailey v. United States, No.94-7448 (Dec.6, 1995) . . . . 2
Cavallari v. Office of Comptroller of  the Currency,
57 F.3d 137(2d Cir. 1995) . . . . 4 
Field v. Mans, 116 S. Ct. 437 (1995) . . . . 2 
Firstcorp, Inc., In re, 973 F.2d 243(4th Cir. 1992) . . . . 10
Good Samaritan Hosp. v. Shalala, 113 S. Ct. 2151
(1993) . . . . 5  
Groos Nat'l Bank v. Comptroller of the Currency,
573 F.2d 889 (5th Cir. 1978) . . . . 9 
Lebron v. National R.R. Passenger Corp, 115 S.
Ct. 961 (1995) . . . . 8 
Pan American World Airways, Inc. v. United
States, 371 U.S. 296 (1963) . . . . 7 
Simpson v, OTS, 29 F.3d 1418 (9th Cir. 1994), cert.
denied, 115 S. Ct. 1096 (1995) . . . . 4 
Stevens v. Department of Treasury, 500 U.S. 1
(1991) . . . . 8 
United States v. Williams, 504 U.S. 36 (1992) . . . . 8 
Vermont Yankee Nuclear Power Corp. v. Natural
Resources Defense Council, Inc., 435 U.S. 519
(1978) . . . . 5-6
Virginia Bankshares, Inc. v. Sandberg, 501 U.S.
1083 (1991) . . . . 8 
Wachtel v. OTS, 982 F.2d 581 (D.C. Cir. 1993) . . . . 8 

Statutes:

11 U.S.C. 365(o) . . . . 10 
11 U.S.C. 507(a)(9) . . . . 10
12 U.S.C. 1464(d)(l)(A) . . . . 9 
12 U.S.C. 1813(u) . . . . 3
12 U.S.C. 1813(w)(5) . . . . 3 

---------------------------------------- Page Break ----------------------------------------

II

Statutes-Continued:             

Page

12 U.S.C. 1817(j)(8)(B) . . . . 3
12 U.S.C. 1818(b) . . . . 2, 4, 5, 7, 9
12 U.S.C. 1818(b)(1) . . . . 3,6,7,8,9, 10
12 U.S.C.. 1818(b)(6) . . . . 3,6,7,8
12 U.S.C.. 1818 (b)(6)(A) . . . . 4,7,8
12 U.S.C. 1818(b)(6)(A)(i) . . . . 1,3,6
12 U.S.C. 1831o(e) . . . . 10
12 U.S.C. 1841(.a)(2)(A) . . . . 3

Miscellaneous:

S. Rep. No. 1482, 89th Cong., 2nd Sess. (1966) . . . . 9

---------------------------------------- Page Break ----------------------------------------

In the Supreme Court of the United States
      
OCTOBER TERM, 1995 

No. 95-738

UNITED STATES DEPARTMENT OF THE TREASURY,
OFFICE OF THRIFT SUPERVISION, PETITIONER

v.

ROBERT D. RAPAPORT

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

REPLY BRIEF FOR THE PETITIONER   

1. The OTS's consistent position has been that a finan-
cial institution insider is "unjustly enriched" within the
meaning of 12 U.S.C. 1818(b)(6)(A)(i) when he enters
into a written agreement with federal bank regulators in
exchange for some valuable regulatory benefit, and then-
having received and retained that benefit-fails to abide
by his side of the bargain. See, e.g., Pet. App. 66a n.29.
That interpretation is consistent with traditional equita-
ble principles of "unjust enrichment." See Pet. 14 n.2.  If
it diverges from those principles, it does so only with
respect to the statutory remedy, which the OTS has
reasonably concluded may be measured by the amount
that a defaulting insider promised to pay in exchange for

(1)

---------------------------------------- Page Break ----------------------------------------

2

a valuable, but not easily valued, regulatory benefit. As
the petition argues (see Pet. 1415), that conclusion is
supported both by the other terms that Congress used
in the same provision, and by the overall structure and
purpose of Section 1818(b). 1.
Respondent makes little effort to answer our argu-
ments (Pet. 8-15) that the OTS has reasonably inter-
preted the statutory phrase "unjustly enriched" to cover
situations like his  He argues primarily that, if the
agency's interpretation is correct, "the term `unjustly
enriched' * * * will have no meaning whatsoever, since
every dispute involving a failure to pay money would
then be a candidate for an administrative resolution."
Br. in Opp. 3 see- also id. at 5-6, 10-11 & n.4. That
argument rests on respondent's incorrect assertion that,
in the OTS's view, "fail[ure] to make a monetary pay-
ment under the terms of a net worth maintenance agree-
ment** *, by itself, constitute[s] unjust enrichment.. "
Br. in Opp: 2 (emphasis added). The OTS, however, has
argued only that an insider like respondent is "unjustly
enriched" if he (i) refuses to pay money in violation of a
previous agreement, (ii) after receiving, in exchange for
that agreement, a valuable benefit-the provision of
federal deposit insurance to his new savings institution-
that cannot be either returned or readily valued. That
position does not deprive the term "unjustly enriched" of

___________________(footnotes)

1 This Court recently reiterated the general proposition that
Congress may be presumed to have intended to adopt a common-law
understanding of undefined statutory terms, "unless the statute
otherwise dictates." Field v. Mans, 116 S. Ct. 447, 443 (1995). A stat-
ute may "otherwise dictate[] not only through an explicit statutory
definition, but by inference from a word or phrase's "placement and
purpose in the statutory scheme: because "[t]he meaning of statutory
language, plain or not, depends on context." Bailey v. United States,
No. 94-7448 (Dec. 6, 1995), slip op. 8.

---------------------------------------- Page Break ----------------------------------------

3

any meaning, or sanction the use of orders under Section
1818(b)(6) to resolve every monetary dispute.
2. Respondent argues (Br. in Opp. 4, 7-8) that the
decision in this case does not conflict with the Fifth
Circuit's decision in Akin v. OTS, 950 F.2d 1180 (1992),
because the facts of the two cases are not precisely the
same. Respondent contends, for example, that Akin con-
trolled the institution whose net worth he promised to
maintain, whereas respondent, although he owned 70% of
the stock of Great Life Savings Association (Great Life),
"did not control" it. Br. in Opp. 4. That contention is
not only factually questionable, see Pet. App. 57a n.23,
but legally irrelevant. Both Akin and respondent owned
more than 25% of the voting stock of their respec-
tive institutions, and both were therefore "institution-
affiliated part[ies]" subject to the banking agencies' cease-
and-desist jurisdiction under 12 U.S.C. 1818(b)(l). See 12
U.S.C. 1813(u) and (w)(5), 1817(j)(8)(B), 1841(a)(2)(A).
Nothing in Akin indicates that the court there relied on
the details of Akin's position in concluding that he was
"unjustly enriched," within the meaning of Section
1818(B)(6)(A)(i), by breaching his agreement to maintain
the net worth of his institution, or that the Fifth Circuit
would have thought this case distinguishable from Akin
on any such basis. See also Pet. App. 67a n.30.
Respondent also argues that Akin "derived an im-
mediate personal benefit from the [OTS's] forbearance
from pursuing a cease-and-desist action that threatened
[Akin's] control" over his institution, whereas respondent
"did not receive any personal benefit" in return for his
agreement to maintain Great Life's net worth. Br. in
Opp. 4; see id. at 8. Here, however, just as in Akin,
respondent clearly received something of value in
exchange for the net worth maintenance commitment he
later breached. Respondent sought federal deposit insur-

---------------------------------------- Page Break ----------------------------------------

4

ante for a new savings association, in which he planned to
be the majority investor. Pet. App. 36a. Federal bank-
ing authorities made insurance available, but only on the
condition that respondent personally agree to maintain
the new association's capital for five years. Id. at 2a.
Respondent was enriched when his new business received
the federal insurance that allowed it to begin operating,
so that respondent could earn a return on his investment.
His enrichment became "unjust" when he refused to
honor his capital maintenance agreement, on which the
provision of federal insurance had been explicitly pred-
icated. Those facts do not distinguish this case from
Akin. See 950 F.2d at 1184.
The decision below also conflicts with Akin as to
the permissible measure of recovery under Section
1818(b)(6)(A). See Br. in Opp. 8. In this case, as in Akin,
the OTS concluded that when an insider retains money
that he promised. to dedicate to the support of his
institution or its creditors (including the federal deposit
insurance fund), the amount promised but unpaid is one
fair measure of the amount. by which he has been
"unjustly enriched" within the meaning of the statute.
Pet. App. 65a-67a, The court in Akin accepted that
contention, and affirmed "in all respects" an order
entered on that basis. 950 F.2d at 1184, 1186. See also
Cavallari v. Office of Comptroller of the Currency, 57
F.3d 137, 144 (2d Cir. 1995); Simpson v. OTS 29 F.3d
1418, 1425-1426 (9th Cir. 1994), cert. denied, 115 S. Ct.
1096 (1995). There is no merit to respondent's sugges-
tion(Br. in Opp. 8) that the Fifth Circuit did not decide
the remedial issue, or that the matter is not ripe for reso-
lution by this Court.
3. Respondent only briefly defends (Br. in Opp. 11-12)
the court of appeals' holding that it owed no deference to
the OTS's interpretation of Section 1818(b). Respondent

---------------------------------------- Page Break ----------------------------------------

5

argues primarily (Br. in Opp. 9-15) that that holding is
irrelevant here, because the statutory language at issue is
"clear and unambiguous" (id. at 9). 2. As both the petition
(at 8-17) and the conflicting decisions in this case and in
Akin (see 950 F.2d at 1183-1184) demonstrate, however,
the proper application of Section 1818(b) to the facts of
this case is a matter over which reasonable minds can and
do differ. It is in precisely such situations that deference
to an administrative agency's interpretation is required.
See, e.g., Good Samaritan Hosp. v. Shalala, 113 S. Ct.
2151, 2159-2162 (1993).
In addition, the court of appeals' refusal to accord any
deference to the OTS's statutory interpretations conflicts
with the practice of other courts of appeals. See Pet. 21,
Respondent argues (Br. in Opp. 12-14) that there is
nevertheless no conflict because the courts that have
deferred to administrative interpretations in this context
have not discussed the position adopted by the court of
appeals in this case. The fact that other courts have not
explicitly rejected the D.C. Circuit's novel argument for
refusing deference does not, however, resolve the con-
flict or lessen the importance of the error below. The
importance of that error is, moreover, magnified by the
fact that it was made by the court in which "the vast
majority of challenges to administrative agency action
are brought." Vermont Yankee Nuclear Power Corp. v.

___________________(footnotes)

2 Respondent suggests (Br. in Opp. 10-11) that the court of appeals
would have proceeded in the same manner, and reached the same
result, whether or not it thought that the OTS's interpretations were
entitled to deference. Only Judge Rogers' concurrence, however, took
that position. Pet. App. 24a. The panel majority dealt with the ques-
tion of deference as a threshold matter (see id. at 10a), and explicitly
held that, because it owed "no * * * deference" to the agency's
interpretation (ibid.), it would "proceed de novo" (id. at 11a).

---------------------------------------- Page Break ----------------------------------------

6

Natural Resources Defense Council, Inc., 435 U.S. 519,
537 n.14 (1978).
4. Respondent-dismisses the OTS's argument that its
order in this case should be upheld without regard to the
"unjustly enriched" language of Section 1818(b)(6)(A)(i)
(see Pet. 15-18) as "linguistic sleight of hand." Br. in
Opp. 16. As the petition points out (at 16), however,
Section 1818(b)(6) relates only to orders that go beyond
the agency's core cease-and-desist authority and order a
party "further, to take affirmative action to correct the
conditions resulting from any * * *  violation or
practice." 12 U.S.C. 1818(b)(1) (emphasis added). The
order at issue in this case did not need to rely on that
"affirmative action" authority.
Section 1818(b)(l) gives the OTS the authority to order
a party to "cease and desist from [a]* * * violation" of
a "condition imposed in writing by the agency in
connection with the granting of any application or other
request by the depository institution" or of a "written
agreement entered into with the agency." Respondent's
failure to honor. his net worth maintenance agreement
violated both a condition imposed in writing and a
written agreement.  Thus, whatever limitations sub-
section (b)(6) may place on agency orders that require
insiders to take additional "affirmative action" to correct
the "conditions resulting from" their violations, those
limitations do not apply to the order issued to re-
spondent, which simply required him to cease and desist
from the violation itself.
Respondent attacks our argument as "a play on
words" (Br. in Opp. 17), because an order to stop violat-
ing an agreement to pay money is, in effect, an order to
pay the money owed. Respondent argues that such an
order is therefore an order to take "affirmative action,"
subject to the limitations of subsection (b)(6). Precisely

---------------------------------------- Page Break ----------------------------------------

7

the same objection could be made, however, to any cease-
and-desist order that directs a party to take some positive
action necessary to comply with a statute or regulation,
safe banking practice, or a written condition or agree-
ment.  Treating all such orders as orders requiring
"further * * * affirmative action" would disserve
Congress's intent in creating the broad cease-and-desist
authority conferred by Section 1818(b)(l). Compare Br.
in Opp. 17 with Pan American World Airways, Inc. v.
United States, 371 U.S. 296, 311-312 & n.17 (1963)
(agency's "cease and desist" authority included power to
compel divestiture).
Our interpretation of the banking agencies' core cease-
and-desist authority does not render the "affirmative
action" provisions of the statute "meaningless." Br.  in
Opp. 18. Where, as here, an insider has reneged on an
express written agreement to pay money, he will have
violated that agreement, which may be enforced under
the agency's core cease-and-desist powers. Typically, he
will also have damaged the institution and been "unjustly
enriched" under Section 1818(b)(6)(A). In cases involving
no written condition or agreement calling for the pay-
ment of money, however, an order to desist from the
violation would not itself entail any remedial payment.
In such cases, the agency could generally order such a
payment only as a matter of "affirmative relief," subject
to the limits of subsection (b)(6).
Respondent contends (Br. in Opp. 18-23) that the OTS
waived any argument based on its core cease-and-desist
authority by failing to raise that argument before the
court of appeals in this case. The argument does not,
however, present a "new claim" in this case it is, rather,
"a new argument to support * * * [the OTS's] con-
sistent claim" that it has the authority under Section
1818(b) to order respondent to comply with his net worth

---------------------------------------- Page Break ----------------------------------------

8

maintenance agreement. Lebron v. National R.R. Pas-
senger Corp., 115. S. Ct. 961, 965 (1995). There would, in
addition, have been no point in raising the argument
before the D.C. Circuit, which had already made clear, in
Wachtel v. OTS, 982 F.2d 581, 586 (1993) (emphasis
added), its broad and unqualified position that "the
government simply cannot make a monetary claim
against [an institutional insider] under 1818 without
meeting the prerequisites of 1818(b)(6)( A). 3. See
Lebron, 115 S. Ct.  at 965 United States v. Williams, 504
U.S. 36, 40-45 (1992).
The decision  below explicitly reaffirms Wachtel's
holding that, in order to issue an order of the sort
involved here, the OTS "must show" that the facts of the
case satisfy one of the conditions set out in Section
1818(b)(6)(A). Pet. App. 9a; see also id. at 19a ("The OTS
has the authority * * * to enforce a capital main-
tenance or other agreement in an administrative
proceeding only against a party who has either been
unjustly enriched or has acted with reckless disregard
for some aspect of federal regulation."). The court of
appeals has thus twice "expressly decided" the first
question stated in the petition, and that question is
properly presented in this case. See United States v.
Williams, supra; Virginia Bankshares, Inc. v. Sandberg,
501 U.S. 1083, 1099 n.8 (1991); Stevens v. Department of
Treasury, 500 U.S. 1,8 (1991).

___________________(footnotes)

3 In Wachtel, the OTS argued broadly that Section 1818(b)(1)
"expressly provides-that the Director may enforce written conditions
imposed in connection with approval of an application. " 91-1586 OTS
Br. 42 (D.C. Cir.). The agency argued that an order requiring com-
pliance with a net worth maintenance agreement could be entered in
reliance solely on Section 1818(b)(l), without regard to subsection (b)(6).
See, e.g., 91-1580 OTS Br. 48. The court of appeals squarely rejected
that claim.

---------------------------------------- Page Break ----------------------------------------

9

5. Finally, respondent argues (Br. in Opp. 4-7) that
this case does not warrant this Court's review because the
decision below will not preclude federal bank regulators
from enforcing net worth maintenance agreements in
actions for contract damages. Although the OTS has the
general authority to sue in federal court, see 12 U.S.C.
1464(d)(1)(A), the "condition[s] imposed in writing" and
"written agreement[s]" that Congress intended to be
administratively enforceable through Section 1818(b)(l)
will not necessarily be enforceable as contracts under
state or federal common law. See cases cited at Br. in
Opp. 5; see also Groos Nat'1 Bank v. Comptroller of the
Currency, 573 F.2d 889 (5th Cir. 1978). Even where con-
tract actions are possible, respondent's reading of the
statute would seriously compromise the strong federal
interest in prompt and appropriate administrative reme-
dies that initially motivated the enactment of Section
1818(b)'s cease-and-desist authority. See, e.g., S. Rep. No.
1482, 89th Cong., 2d Sess. 5 (1966) Experience has often
demonstrated that the remedies now available to the
Federal supervisory agencies are * * * too cumbersome
to bring about prompt correction and promptness is very
often vitally important.").
The adverse effects of the decision below are im-
portant. As the petition notes (at 23), a significant num-
ber of net worth maintenance agreements are out-
standing, and additional agreements of this kind may be
entered into in the future.  Nor is the decision below
limited either to those agreements or to the OTS. Every
subject of an agency action under Section 1818(b) may
seek review in the D.C. Circuit, and the decision below
therefore affects all four federal banking agencies.
Moreover, Section 1818(b) controls the administrative
enforcement of all regulatory conditions "imposed in
writing" by, and all "written agreements" with, any of

---------------------------------------- Page Break ----------------------------------------

10

those agencies. Thus, as discussed in the petition (at 24),
the decision below inappropriately restricts the remedial
options open to all four federal banking agencies in cases
in which an institution-affiliated party has violated a
written agreement imposing obligations beyond those
created by statute, regulation, or prior agency order.
Congress has made clear that it considers the admin-
istrative use and enforcement of written coalitions and
agreements, including net worth maintenance agree-
ments, to be an important part of the regulatory system.
See 12 U.S.C. 1818(b)(l) (providing for enforcement); 11
U.S.C. 365(o) and 507(a)(9) (making special provision for
the enforcement of net worth maintenance agreements in
bankruptcy); see-also In re Firstcorp, Inc., 973 F.2d 243
(4th Cir. 1992); cf. 12 U.S.C. 1831o(e) (providing for the
use and enforcement of "capital restoration plans" for
undercapitalized institutions). The decision below places
unjustifiable limits on the ability of federal regulators to
enforce such written obligations.
* * * * * 

For the reasons set forth above and in the petition, the
petition for a writ of certiorari should be granted.
Respectfully submitted.

CAROLYN J. BUCK.
Chief Counsel 
Office of Thrift Supervision

DREW S. DAYS, III
Solicitor General 

DECEMBER 1995