Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-10-01288/USCOURTS-caDC-10-01288-0/pdf.json

Parties Involved:
Carlos Loumiet
Petitioner
Office of the Comptroller of the Currency
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 6, 2011 Decided July 12, 2011

No. 10-1288

CARLOS LOUMIET,

PETITIONER

v.

OFFICE OF THE COMPTROLLER OF THE CURRENCY,

RESPONDENT

On Petition for Review of an Order 

of the Department of Treasury

Alan G. Greer argued the cause for petitioner. With him 

on the briefs was Eric M. Sodhi. 

Douglas B. Jordan, Attorney, Office of the Comptroller 

of the Currency, argued the cause for respondent. With him 

on the brief were Horace G. Sneed, Director of Litigation, 

and Allen H. Denson, Attorney.

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Before: HENDERSON, BROWN and KAVANAUGH, Circuit 

Judges.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge: Carlos Loumiet appeals a final 

decision and order of the Office of the Comptroller of the 

Currency (“Comptroller”) requiring him to bear the costs of 

his own defense in an underlying administrative proceeding in 

which he prevailed. We reverse that decision, finding the 

Comptroller was not “substantially justified” in bringing the 

underlying administrative proceedings against Loumiet, and 

therefore Loumiet is entitled to attorney’s fees under the 

Equal Access to Justice Act, 5 U.S.C. § 504. We remand for 

the Comptroller to calculate the amount of those fees. 

I

In 1998, Hamilton Bank (“Bank”) engaged in “adjusted 

price trades” or “ratio swaps,” a type of bank and securities 

fraud when used to conceal losses in which financial

instruments are sold at face value even though the instruments 

are actually worth far less. In this case, Hamilton invested 

$22M in Russian debt instruments, which subsequently lost 

value in the summer of 1998. See United States v. Masferrer, 

514 F.3d 1158, 1160 (11th Cir. 2008) (describing the Bank’s 

fraudulent transactions). To conceal the loss, the Bank 

swapped the Russian debt instruments for other financial

instruments. Id. General accounting rules require such swaps 

to be accounted for as related transactions. Id. By not doing 

so, the Bank made it appear as if it “managed to sell its 

Russian assets at face value, thereby hiding their highly 

discounted sales prices.” Id. 

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The Comptroller discovered the Bank’s ratio swaps and,

in April 2000, issued a temporary cease-and-desist order 

requiring the Bank to take remedial measures. The Bank’s 

Audit Committee retained an outside law firm, Greenberg 

Traurig, LLP (“Greenberg”), to conduct an independent 

investigation of the alleged fraud. Greenberg, led by

Loumiet, who was a partner at the firm at the time, reviewed 

the pertinent documents, conducted personal interviews of 

Bank executives, and ultimately issued a report to the Bank’s 

Audit Committee on November 15, 2000 (“November 

Report”). The November Report found “no convincing 

evidence” to establish Bank executives “intentionally misled” 

Deloitte and Touche (“Deloitte”), the Bank’s outside 

accounting auditor, or the Bank’s own Audit Committee. See 

Loumiet, OCC-AA-EC-06-102 (July 20, 2010) (initial EAJA 

Decision), reprinted in Joint Appendix (“J.A.”) 1868. 

Nevertheless, the Bank restated its public financial 

statements, believing the November Report provided a 

sufficient basis to conclude the swaps should have been 

accounted for as related transactions.

In January 2001, the Comptroller sent Greenberg a letter 

in response to the November Report. The letter indicated the 

Comptroller had taken the statement of an individual who had 

participated in the swap transactions (i.e. a counter-party) as 

part of its on-going investigation of the Bank. According to 

the Comptroller, the statement contradicted the November 

Report. The Comptroller also notified Greenberg orally of six 

red flags indicating the Bank had engaged in adjusted price 

trades. As a result, Greenberg drafted a second report, which 

it provided to the Bank’s Audit Committee in March 2001 

(“March Report”). The March Report found the counterparty’s statement was consistent with statements made by 

Bank executives during Greenberg’s initial independent 

investigation. The March Report also concluded the 

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Comptroller’s red flags did not alter the previous conclusions 

of the November Report. 

The Comptroller issued its own report alleging

wrongdoing at the Bank (“Comptroller Report”). As a result 

of the OCC Report, the Bank shut down. Three Bank 

executives entered into consent orders with the Comptroller, 

barring each from participating in the affairs of a federally 

insured bank in the future. Greenberg also entered into a 

consent order, agreeing to pay $750,000 in fines. Finally, the 

Comptroller closed the Bank and appointed the Federal 

Deposit Insurance Corporation as its receiver. 

Several years later, the Comptroller’s Enforcement and 

Compliance Division (“Division”) invoked the Financial 

Institutions Reform, Recovery, and Enforcement Act 

(“FIRREA”) of 1989, Pub. L. No. 101-73, 102 Stat. 183

(codified in scattered sections of Title 12 of the U.S. Code), 

and initiated an administrative proceeding against Loumiet. 

The Division alleged Loumiet was an “institution-affiliated 

party” (“IAP”), who, in participating in Greenberg’s 

independent investigation of the Bank, had “knowingly or

recklessly . . . breach[ed his] fiduciary duty,” and as a result 

“caused . . . a significant adverse effect on” the Bank. 12 

U.S.C. § 1813(u)(4). The Division sought to assess a 

$250,000 monetary penalty against Loumiet, among other 

sanctions. After a three week bench trial, an Administrative 

Law Judge (“ALJ”) recommended dismissal of the Division’s 

claims (“ALJ FIRREA Decision”). Loumiet ̧ OCC-AA-EC06-102 (June 17, 2008), reprinted in J.A. 950. The 

Comptroller reviewed the ALJ’s recommendation 

(“Comptroller FIRREA Decision”) and agreed dismissal was 

appropriate, but “largely rejected” the “reasoning and 

conclusions” in the ALJ FIRREA Decision. Loumiet, OCCAA-EC-06-102 at 17 (July 27, 2009), reprinted in J.A. 1043.

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Following the Comptroller FIRREA Decision, Loumiet 

filed an EAJA application seeking attorney’s fees for his 

defense in the agency FIRREA adjudication. An ALJ

recommended denying Loumiet’s application (“ALJ EAJA 

Decision”), concluding that the Division’s position in the 

underlying agency proceeding was “substantially 

justified . . . in both law and fact” and therefore Loumiet was 

not entitled to attorney’s fees. Loumiet, OCC-AA-EC-06-102 

at 7 (July 20, 2010). Because neither party sought review by 

the Comptroller, the ALJ’s recommendation became the final 

decision of the Comptroller. 31 C.F.R. § 6.15. Reviewing

that decision for substantial evidence, see 5 U.S.C. 

§ 504(c)(2) (specifying the standard of review); Kuhns v. Bd. 

of Governors of Fed. Reserve Sys., 930 F.2d 39, 41 (D.C. Cir. 

1991) (reviewing agency’s EAJA decision for substantial 

evidence); we reverse and remand for further considerations 

consistent with this opinion. 

II

The EAJA provides: “An agency that conducts an 

adversary adjudication shall award, to a prevailing party . . . 

fees and other expenses incurred by that party in connection 

with that proceeding, unless the adjudicative officer of the 

agency finds that the position of the agency was substantially 

justified or that special circumstances make an award unjust.” 

5 U.S.C. § 504(a)(1). The Comptroller, who bore the burden 

in the EAJA proceeding before the ALJ of demonstrating the 

Division’s position was substantially justified, see F.J. 

Vollmer Co., Inc. v. Magaw, 102 F.3d 591, 595 (D.C. Cir. 

1996), concedes Loumiet was a “prevailing party” under the 

EAJA. Thus, Loumiet is entitled to attorney’s fees unless the 

“administrative record, as a whole, which is made in the 

adversary adjudication,” 5 U.S.C. § 504(a)(1), shows the 

Division’s position in the underlying agency FIRREA 

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adjudication was “justified in substance or in the main.” 

Pierce v. Underwood, 487 U.S. 552, 565 (1988).

A

The Division claimed the Bank Audit Committee 

engaged Loumiet to provide services to the Bank, and 

Loumiet’s conduct in providing those services met all the 

elements necessary to establish him as an IAP. FIRREA 

defines an IAP to include:

Any independent contractor (including any 

attorney, appraiser, or accountant) who 

knowingly or recklessly participates in—(A) 

any violation of any law or regulation; (B) any 

breach of fiduciary duty; or (C) any unsafe or 

unsound practice, which caused or is likely to 

cause more than a minimal financial loss to, or 

a significant adverse effect on, the insured 

depository institution.

12 U.S.C. § 1813(u)(4). The Comptroller FIRREA Decision

found the administrative record “lack[ed] sufficient evidence 

that the two reports prepared by Mr. Loumiet caused, or were 

likely to cause, harm to the [B]ank that satisfies the ‘effect’ 

requirement . . . .” In other words, the Division could not 

show that the November or March Reports caused “more than 

a minimal financial loss to, or a significant adverse effect on,” 

the Bank. 12 U.S.C. § 1813(u)(4). The ALJ EAJA Decision, 

nevertheless, found the Division’s litigation position 

“supported by a variety of highly-qualified expert witnesses,” 

“stood a reasonable chance of succeeding on the merits,” and 

“represented a good-faith and credible interpretation of law.” 

Loumiet, OCC-AA-EC-06-102 at 7 (July 20, 2010), reprinted 

in J.A. 1873.

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To justify the ALJ EAJA Decision, the Comptroller now 

argues the November Report and the March Report falsely 

exonerated Bank executives, and as a result, the Bank’s Audit 

Committee failed to replace “at least one of the Bank’s senior 

officers.” Resp’t’s Br. at 29. Said differently, the 

Comptroller alleges the harm caused by Loumiet’s conduct 

was the continued employment of the Bank’s executives. In 

support, the Comptroller relies upon the expert report of 

Charles Rardin, a bank examiner with the Comptroller. 

Rardin’s report stated that “the [November and March] 

Reports led the Bank to retain the dishonest officers. In 

particular, the Reports gave the officers the shield of a large 

law firm’s exoneration from wrongdoing, which protected the 

officers regardless of whether others at the Bank knew the 

Reports were false. Retaining dishonest senior executive 

officers is likely to harm a bank.” Loumiet, AA-EC-06-102 at 

18 (July 31, 2007) (expert witness report), reprinted in J.A. 

676. Rardin’s report also says “the [November and March] 

Reports facilitated the perpetuation of the Bank’s inaccurate 

public financial statements.” Id. at 7. 

Section 1813(u)(4) requires that an IAP cause harm to the 

Bank itself. Thus, showing the November and March Reports 

exonerated Bank executives is not sufficient to qualify 

Loumiet as an IAP, without some evidence linking the 

continued employment of the Bank executives to a significant 

adverse effect on the Bank. The administrative record is 

noticeably devoid of such evidence. There is no evidence the 

continued employment of Bank executives after the 

November and March Reports caused reputational harm to the 

Bank, impacted the internal culture of the Bank, or created 

any other effect on the Bank. Even Rardin’s report is 

unhelpful. It says only that retaining the Bank executives 

would “likely” harm the Bank. It is true that demonstrating 

the continued employment of Bank executives “is likely to 

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cause harm,” 12 U.S.C. § 1813(u)(4), could be sufficient to 

classify Loumiet as an IAP (and thus to show substantial 

justification under the EAJA). But the Agency’s evidence 

here—a conditional statement from an Agency examiner that 

some unspecified harm may result—falls short of the 

necessary quantum of proof. Because Rardin’s statement was 

both vague and unsubstantiated, it does not demonstrate the 

Division’s litigating position was justified, let alone 

“substantially” so. In addition, Rardin’s reliance on the 

Bank’s “inaccurate public financial statements” is a red 

herring, as the Bank promptly revised its public financial 

statement as a result of the November Report. Thus, the Bank 

executives’ continued employment did not delay the 

restatement.

The Comptroller offers a cornucopia of alternative 

arguments. None merit much consideration. First, the 

Comptroller argues the Bank did not obtain its money’s worth 

from Greenberg’s independent investigation. But this is not 

the type of “financial loss” or adverse effect § 1813(u)(4)

contemplates. Cf. Lindquist & Vennum v. FDIC, 103 F.3d 

1409, 1419–21 (8th Cir. 1997) (refusing to enforce an order 

of the FDIC requiring a law firm to refund the fees it 

charged). The focus of § 1813(u)(4) is on independent 

contractors “conducting the affairs of” the Bank, Grant 

Thornton, LLP v. Office of Comptroller of Currency, 514 F.3d 

1328, 1331–32 (D.C. Cir. 2008) (quoting 12 U.S.C. 

§ 1818(i)(2)(B)(i)(II)), such as an attorney who provides “oral 

and written advice” that a particular investment was in the 

Bank’s best interest. See, e.g., Cavallari v. Office of 

Comptroller of Currency, 57 F.3d 137, 142 (2d Cir. 1995). In 

that case, the “financial loss” or “significant adverse effect” 

on the bank is the lost value of its investment, not the value of 

services furnished by independent contractors investigating 

bank affairs after the suspect transaction occurred. Indeed, 

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the Comptroller’s approach would vitiate the “significant 

adverse effect” requirement altogether, as § 1813(u)(4) 

presumes an independent contractual relationship, such as that 

of a lawyer, appraiser or accountant. And, according to the 

Comptroller, any such relationship could result in the 

necessary harm if the work did not end well. 

Second, the Comptroller argues the Bank made a $15M 

loan that caused significant harm. But there is no record 

evidence of the loan’s causation. Consequently, it is 

impossible to determine whether Loumiet’s alleged 

misconduct indirectly caused the loan to be made. 

Finally, the Comptroller argues the Division’s litigating 

position is substantially justified because the legal issue 

presented is novel. The Comptroller cites in support Hill v. 

Gould, 555 F.3d 1003, 1008 (D.C. Cir. 2009), a case in which 

this court affirmed the denial of a fee award because the 

agency “took a reasonable approach to [a] relatively unsettled 

area of administrative law.” The Comptroller argues the 

“effects” prong of § 1813(u)(4) is a similarly unsettled area of 

law because only one court of appeals had addressed the 

provision when the Division filed its Notice of Charges 

against Loumiet in the underlying administrative FIRREA 

adjudication. See Cavallari, 57 F.3d at 142. But whether the 

November or March Reports “adversely affected” the Bank is 

not a legal issue. And, to the extent that issue incidentally

involves questions of law, those questions focus on causation, 

a topic that can hardly be described as novel. Cf. Palsgraf v. 

Long Island R. Co., 248 N.Y. 339 (1928).

B

A few lingering issues remain. In order to receive 

attorney’s fees under the EAJA, a prevailing party must have 

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previously “incurred” the fees. In addition, the EAJA 

provides that “attorney or agent fees shall not be awarded in 

excess of $125 per hour unless the agency determines by 

regulation that an increase in the cost of living or a special 

factor . . . justifies a higher fee.” 5 U.S.C. § 504(b)(1)(A). 

Loumiet argues he incurred all the attorney’s fees he requests, 

even though Greenberg advanced a portion of the fees. 

Loumiet also contends he may be reimbursed for fees in 

excess of the $125 per hour cap because of changes in the 

cost of living. The ALJ EAJA Decision did not address these 

issues. Rather than do so here, we remand for the 

Comptroller to consider these issues in the first instance. See 

Singleton v. Wulff, 428 U.S. 106, 120 (1976) (“It is the 

general rule, of course, that a federal appellate court does not 

consider an issue not passed upon below.”).

III

The Division brought an administrative proceeding 

against Loumiet, alleging he was an IAP under FIRREA and 

subject to a monetary fine. That case was dismissed on the 

merits because the evidence in the record did not establish a 

“significant adverse effect” on the Bank. 12 U.S.C. 

§ 1813(u)(4). Nor does the evidence in the record establish 

that the Division was “substantially justified” under the EAJA

to bring the underlying agency proceeding against Loumiet. 5 

U.S.C. § 504(a)(1). No evidence supports an inference that 

the Bank suffered any “adverse effect” from the continued 

employment of Bank executives after the November and 

March Reports; nor does evidence support an inference of 

“adverse effect” from any other theory presented by the 

Comptroller. See Taucher v. Brown-Hruska, 396 F.3d 1168, 

1173 (D.C. Cir. 2005) (requiring “a reasonable basis both in 

law and fact” to satisfy the EAJA’s substantial justification 

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standard). As a result, we grant the petition for review and 

remand.

So ordered.

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