thank you i'd like to go ahead and take fourteen minutes for the national argument and reserve six for rebuttal may it please the court my name is jack you teevan i represent the petitioners in this case that the hud ale j's imposition of seventy thousand dollars in civil money penalties against them violates section seven zero six of the ministry of procedures act which of course controls agency action because it was not based on substantial evidence those are two requirements of course of section seven zero six now it is clear and there's no dispute the congress has established a statutory scheme that heidi is supposed to follow which i did not follow that what is supposed to follow in order to determine whether civil money little tease are appropriate and statutory scheme is really quite simple in principle it incorporate extra requirements i reference it could and interestingly it doesn't the regular cherry greenman incorporates nothing else and in fact clause fifteen of the regulatory agreement and i mean i may not be able to quote it exactly says something along the lines of the petitioners in this case owners as with the language is shall not enter into any other agreement in violation of the provisions here with and in any case this agreement shall be shall shall supersede any conditions or provisions in conflict there with that's clause fifteen i believe on page four of the regulatory agreements by its own language supreme law that controls the relationship of the parties now continuing on as i mentioned the congressional scheme requires three things to be found a violation as we mentioned in this case the violation alleged is the the failure to file financial reports second congress required and there's a lot of legislative language and florida actually in the supplemental appendix out by had itself talks about the importance of not assessing civil money penalties for trivial violations the language on the floor by senators cranston and jerry was that it should be a serious violation of purpose to generate more housing and incidentally let me make a point here this was not a subsidized loan neither petitioner has ever been take has ever taken a dollar of subsidy and one of the issues in the case is the potential for default the evidence in this case is undisputed that the petitioner trying the corporation paid ninety ninety thousand three hundred seventeen dollars into a fund to handle any fault so even if there had been a default and in this case the facts are absolutely clear that no default was either considered or possible given the loan to value ratio of thirty percent it was absolutely clear that there was not going to be a default in this case and so therefore floor debate congressional floor debate which the court obviously can look at to determine to the extent it's clear to determine what congressional intent was third condition  in addition to finding a violation sorry second condition in addition to violation is finding that the violation was knowing and again the floor debate explained that inadvertent violations are not sufficient regardless of our nature third gresham the requirement was materiality because of the limit of time i can't discuss all three of them in detail but i think materiality is perhaps the most important order to assess once a violation is found the amount of penalty congress actually has established eight factors which have become among us known as the eight factors in implementing the congressional statute has regulations nonsensical scheme and first problem is that they use now pursuant to a secretary of hud order to use the same eight factors term in materiality i each determine if a violation you could still take laws and apply those parts of it that made sense and come out with a result you might say well this one doesn't make much sense in this case so it's we don't give it to your weight it's  guy's own well judge can be you must know where my second statement is going to be in fact when we look at the individual factors themselves huddy l j in this case stated that one of those eight factors was unconstitutional which is factor number three the bill t to pay and i quote judge hines in this case he said to consider the bill t to pay would unquestionably violate the equal protection clause of the fourteenth amendment yet he pursues whether or not a fine will be made on the basis of whether the person has any money or not i think perhaps there is a confusion here and perhaps it's mine i agree with the court that if we're thinking about sentencing guidelines it's appropriate use ability to first analysis using ability to pay is in determining materiality and without materiality you can't have a violation to begin with so they're using ability to pay to determine in essence guilt or innocence or liability or no ones in addition to the one are illogical for example we're trying to determine materiality whether the violation is material and judged hine said that to consider the turns for example would not be a measure of materiality because deterrence is a societal purpose for future actions and materiality is a backward looking analysis that looks at the conduct of the  parties in any case the so that's a second problem the second problem being that six of the eight factors according to this judge in this case and his own words were illogical or unconstitutional yet he goes and considers and holds several of those factors against the petitioners in this case the third problem with hundreds regulatory scheme that violates the congressional intent is hunt has decided through its own rule making that the standard by which these factors ought to be looked at to determine materiality shall be the totality of the circumstances materiality and if those two factors can always be found as they were in this case without one scintilla of evidence what we have essentially done with hundreds essentially done is written out the materiality required meant in the statute and the materiality requirement which was extensively discussed in florida and converted what is supposed to be the totality of the circumstances with three requirements impose a penalty for failure to file audited financial or is there a reason why they can sensibly require playing in for courts well i think that raises a separate question true only if you assume that a statute passed five years after that agreement which is supposed to supersede any any provisions and conflict there with that is if you assume and you know obviously the court gets to decide th but i don't see it proper for hard by by rule making five years after entering into an agreement with trying the corporation and thousands of other mortgage drawers to be able to do that without even  letting the mortgage or no i would also point out judge can be that that there is a requirement and independent requirement which we didn't discuss much for knowing conduct there's absolutely no evidence in this case the corporation and even less evidence less and nothing evidence the jacketed myself in my personal capacity ever had a clue that would at a later time think that it would get a personal guarantee from me and from every other principle of every other mortgage or entity that signed a regulatory agreement with hud that hud would five years after the signing be able to extract personal guarantees from people who aren't even signatories to the agreement i see i only have five and a half minutes i'd like to reserve that for a bottle if i could make you thank you requires a specific reference for ease of reference the operative statue describes how would you just review was obtained of a side imposition of a civil monetary  penalty statute contemplates original proceeding to file for the court of appeals in review based on the administrative record and she's on the stand to review under the administrative procedures act that wasn't done rather the complaint was filed in the district court which requested review of imposition of the penalty but also included other what all characterize as miscellaneous claims the district court dismissed miscellaneous claims and then transferred the remaining matter review of the civil management penalty claim to the court you seem to not argue that the district court heard in any way in the dismissal of those rema claims and so through that procedural mechanism i believe the case is properly here as though it had been filed as a timely for tyshan for review based on the administrative record that was submitted as if it were a timely petition for review as mr you mentioned a standard obviously is well known to this court is there an adequate factual basis for the penalty that was imposed not only on the treaty personally but on the decision not just one but actually two and those are found to have eleven in the excerpts of record one decision the preliminary decision when one does that actually initial decision that's actually the but initial the first decision found violations had indeed occurred and rejected various claims arguments that were advanced by mr yoo to even try me and then the second decision which is actually the first in s decision the factual findings made by the l j are supported by references by the tail j to the administrative record that's before the court and so we benefit from that as well is there or does the record reflect whether hyde really wanted to use statements at all i mean they never asked for him for five years or something like that contention before the l j and they all didn't actually rule one way or the other there's a footnote number four in the initial decision or i should say the first decision found at extra record page seventy four where they l j notes that there was conflicting testimony about whether bothered mr u t v over the course of the years requesting these audit reports this u t v denied it and then simply noted that that was a point of contention but didn't know that rejected you teves contention that hud was indifferent to these reports and what i want to zero in on that question your honor because i think implicit the subtext here is that somehow these reports are simply a bureaucratic exercise nobody cares about them nobody reads them it's just a situation where one is filling up warehouses full of audited financial reports that nobody ever cares about and that simply is not the case these audited finance reports are are critical and and i think the elegy decision reflects that that this is really the only meaningful mechanism whereby hud can monitor the financial viability particular hub subsidized housing complex to determine where the money is going what money is coming in and what money is going out are there adequate financial reserves in place that are required by h to pay for repairs and maintenance for a large apartment complex are tenants deposits being properly accounted for is the entire project being managed in a way that conforms with generally acceptable accounting principles  the amount of the penalty and if none of those dangers actually occurred in this case yes your honor because hud couldn't possibly know in one thousand ninety seven ninety eight ninety nine and two thousand one that mr u t v are trying they would pay off the loan in whole and late two thousand to the focus is on what is the situation right now entered at one point he tendered payment correct earlier but during the process when the loan guarantee is in place and when hud is financially exposed to that financial harm that potential harm hud has a reasonable expectation that it will be able to monitor yes risk and it does that by evaluating these audited finance reports which by the way that you are not submitted in paper form they're done on a website where fields are filled in by the accountant and then they are identified as certified by the accountant and so that that presentation of that audited finance report that's submitted online can be mined by hud auditors in a very quick rapid manner so that they can evaluate is there any problem here do we need to further evaluate the financial health of this particular project is there a problem that we need to investigate further or do we give this one a pass for this year and then look at it again next year that is an ongoing process from year to year to year because during those years when that loan guarantees in place hud is exposed to a financial risk to its insurance fund the fact that the loan is paid off and the loan guarantee becomes meaningless years later doesn't mean that in retrospect the auditor reports were of no value at the time of the risk the time that the risk was real those reports are important to hud's ongoing monitoring progress of the apartment complex and to the tenants who live there attended one of the purposes for hud existence is to encourage the development and availability of moderate and low income housing to real people real ten and part of that is to be able to encourage vale ability of suitable housing housing that meets the tenants needs and that includes maintenance costs repair costs to make sure that the statute identifies a multitude of factors that j is obliged to consider or encouraged to consider in determining a whether a penalty should be assessed and the amount of the penalty just as to whether it should be in the fact well it generic terms is the deterrence value of the penalty that's being proposed and clearly the churns factor has built within it the individuals or the corporations ability to pay a very wealthy participant in this had program would not be in any way deterred by a low value penalty by the way there is a maximum penalty of course for a violation prepare these reports and certify them and submit them that has a fixed cost or at least a definable cost and so a participant a such as your teeth can decide well it's going to cost me x dollars using hypothetical numbers five thousand dollars a year to submit this report but i'm only going to get hit with a two thousand dollars penalty if i don't so i'll go and just take the penalty and i won't submit the report and so there is a a rational linkage for purposes of the deterrence value in terms of what kind of penalty is imposed whether a penalty at all is imposed and secondly what the amount of that penalty i don't think that any of them are you a logical some of them may not apply to the particular violation there's a multitude of violations or i should say obligations that are imposed upon the height insured mortgage or her and about a dozen and then there are penalties that can be assessed based on violating those obligations and then there are factors to consider to determine whether it penalties should be imposed clearly some of those factors don't relate to particular violations but that doesn't mean the entire scheme fails simply means that you look at the factors that are germane and relevant to the actual violation that is being s performance of its programatic obligations in evaluating the viability of these projects and it's financial risk the history of other offenses and here by the time two thousand one rolls around we have four years of sequence full of violations that have occurred we have the ability to pay that we've already talked about we have a benefit that's received by v not complying with the obligations namely he saved the money that he would have had to pay somebody else to submit the required reports so he enjoyed that benefit after already obtaining the benefit of the hard guarantee itself and then there's the deterrence value of it's a fairly small community of hard insured mortgage ores nationwide the message needs to be sent the four years we don't know that's correct the l j did not make that finding but did make the finding and not only that footnote but in the text of both decisions ala jay went through in some detail about why these reports are important the failure to provide these reports on an ongoing basis on an annual basis undermines the ability of hyde to do its job and that is to protect tenants preserve and protect its own insurance fund and people accountable for what they have promised to do in seeking out and obtaining the loan guarantee that had provided as part of that financing of the apartment complex and so the materiality issue i believe was properly found although there was a point of contention about the extent to which had demanded the reports through the years that particular factual point did not need to be resolved in the elegies view because the l j had an adequate factual basis to find that it was not indifferent to these reports and your honor even as late as two thousand and one when was a flurry of letters that are there part of the administrative record even at that late date distribute team is saying i'm not going to give you these reports in fact i never intended to give you these reports i didn't think you would ever enforce these reports i thought this was the meaningless exercise i private mortgage broker told me that you didn't enforce this and so even at that late date if you had simply provided the delinquent reports we don't know for certain what h response would have and by looking at the letters that went back and forth it would appear as though he would have said thank you for finally providing the family the delinquent reports but by the way you have another report due in a few months you please provide that one to tease simply said no you don't need these reports i don't need to give them to you and i'm not going to and i never intended to which of course goes directly to the issue of knowing violation he clearly knew what the other time you said that had  been paid off i was into and we see a number of the letters are quoted in the l j decision very in mid two thousand and one when and early two thousand and two when the issue was was more aggressively discussed between hud and mr your team about where are these reports that we've been talking about for so long so the later pay off which was in the last day of december of two thousand and two what was not part of that dynamic of where are the reports strategic had no intention either on behalf of trying a corporate entity or individually ever providing the reports which he promised to provide which he agreed quite in a regulatory agreement and which by statute was required to provide in the reply brief i think suggests that the main focus here on behalf of mr t v is this notion that the regulatory agreement is the sole basis for any kind of in forced an action by hud and clearly that is simply not the case that the statute describes what the violations are spread with the obligations are described with the and foreclose the mortgage in order to vindicate its its expectation that people will comply with their statutory obligations and the audited financial reports will be provided and then it says that upon the request of the secretary they will be audited by a certified public accountant and so there is that provision in the regulatory agreement that the report needs to be certified the statute says there is the secretary requires it and i assume you're saying that the secretary's request came in a former regulation that's correct but even even putting that aside the statute itself says these reports must be certified by certified public accountant or independent public accounting and that is what the penalty was based on was the violation i would just like to call the court's attention to something that pervades both jay's opinion and their brief much of what and with all due respect in this team member of the bar one who appears before this court regularly with respect to mr addington much of what he said is either not in the record or flatly contradicted by the record did you write that you never intended to file reports on the contrary your honor the only proof which was credited by the l j was i received a letter on february five two thousand and one on the day that i received the letter i called joyce young the name that mr addington was unable to recall and said you know ms young i'm happy to provide these reports to you it was my understanding that hud doesn't care about them you've never asked for them before but i'm happy to provide them to you in fact i have them right here because i used my quicken program do my to prepare my tax returns i had them and she said no they have to be audited and i said no ma'am ninety of the regulatory game and i mean human fault me for being a stickler for details but you're not going to fault me i don't think for for not doing my duty i said ma'am clause nine east said that only an audited reports are required and that's what i'm offering you she says no you have to give me audited reports and i said why and she basically said and i know i know your honour's of that experience enough with with the government to believe this answer because i said so that was her answer she didn't say because there's a statute that ha i mean rather than get into this detail which i think is a critical one i really want to make a bigger point to your honor's and the bigger point is please these as you write in your opinions please look to the record because you will not find most of the things you just heard about let me give you a couple of examples of the example you just gave us i believe your point said you know he hasn't so you said he is not going to submit these reports and the answer he was referring to on a good report that's correct clearly you are going to have motive to hold on a second your honor no i didn't say that what i said was i read the agreement look no party to an agreement is obligated to take the other part in the other party's understanding of the agreement i mean if you and i enter into a contract i'm going to buy a car payment for a thousand dollars and you say i want fifteen hundred i mean come on the point is i will live up to the green and i was obligated to live under and when i say i i really mean trying to corporation i don't mean jack the t v was not obligated on this and any shit way shape or form but the point is that i asked the government to tell me why it was that i was obligated to do this if the joyce hsiang had conversations t and you know what you owe us fifty thousand dollars and i said ma'am it's not in the regulatory agreement she says well you know we just passed a regulation you call me fifty grand your honor would be correct if you were reading me to say no way i'm not going to pay you fifty thousand dollars it's not in there the regulatory going it was clear clause fifteen in the regulatory green that was clear that it superseded any provision in conflict there with and i was not going to take the word of joyce young saying hey you have to do this now let me just close and i only have a couple minutes a couple of more examples judge noonan asked mr addington give us some of the serious violations here the first one that he mentioned was the gravity of the offense the way that the judge in this case described that is he said well to try to determine materiality by gravity begs the question it's like asking is this serious by asking if it's serious ok the second thing he said was history of offenses the reason i didn't quote what he said on gravity is because it's a long paragraph but history will spencers was the second thing mr addington said well let me quote page fifty three of the record this is this case said the record contains no evidence that respondents have previously violated the act ok so he was just telling you here and i just am asking your honour's to realise that he's given you a up as i understand why it's easy to do so because i had again not in compliance with the congressional statute has mixed the two sets of factors by using them both to determine materiality and to determine damages or the amount of penalty i agree with judge noonan that the bill to pay is and your honor judge can be that it is an appropriate to look at the bill to pay in determining the amount of the penalty but that isn't my my gripe here i gripe