Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-01534/USCOURTS-caDC-98-01534-0/pdf.json

Parties Involved:
Federal Deposit Insurance Corporation
Respondent
Office of the Comptroller of the Currency
Amicus Curiae for Respondent
Billy Proffitt
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 14, 1999 Decided January 21, 2000

No. 98-1534

Billy Proffitt

Petitioner

v.

Federal Deposit Insurance Corporation,

Respondent

On Petition for Review of an Order of the

Federal Deposit Insurance Corporation

Frank J. Eisenhart argued the cause for the petitioner.

Arthur W. Leibold, Jr. entered an appearance.

Jack D. Smith, Deputy General Counsel, Federal Deposit

Insurance Corporation, argued the cause for the respondent.

Christopher J. Bellotto and Lawrence H. Richmond, Counsel,

Federal Deposit Insurance Corporation, were on brief.

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Robert B. Serino, L. Robert Griffin and Douglas B. Jordan,

Counsel, United States Department of Treasury, were on

brief for amicus curiae.

Before: Silberman, Ginsburg and Henderson, Circuit

Judges.

Opinion for the court filed by Circuit Judge Henderson.

Dissenting Opinion filed by Circuit Judge Silberman.

Karen LeCraft Henderson, Circuit Judge: In 1998 the

Federal Deposit Insurance Corporation (FDIC) removed Billy Proffitt as director of Tennessee State Bank of Gatlinburg,

Tennessee (Bank) and prohibited him from further participation in the banking industry. The FDIC acted pursuant to

its removal authority under section 8(e), 12 U.S.C. s 1818(e),

of the Federal Deposit Insurance Act (FDI Act), 12 U.S.C.

ss 1811 et seq. It ruled that 28 U.S.C. s 2462, which imposes

a five-year statute of limitations on "an action ... for the

enforcement of any ... penalty," does not limit a section 8(e)

removal and prohibition action because the sanction is remedial, not punitive. Relying on Johnson v. SEC, 87 F.3d 484,

488 (D.C. Cir. 1996), which defined "penalty" as used in

section 2462 as any "punishment imposed by the government

for unlawful or proscribed conduct, going beyond compensation of the wronged party," we conclude that the FDIC's

section 8(e) removal action imposes a penalty and therefore

triggers the five-year statute of limitations. We also conclude

that the limitations period can be triggered separately under

section 8(e)'s alternative "effects" language and therefore the

FDIC's action was timely because it was brought within five

years of when the Bank "suffered financial loss." 12 U.S.C.

s 1818(e)(1)(B)(i). Finally, because the FDIC's section 8(e)

removal and prohibition order imposes a penalty, due process

does not require the FDIC to consider Proffitt's current

competence or risk to the public vel non. Accordingly, we

deny Proffitt's petition for review.

I.

Proffitt was the majority shareholder of Tennessee State

Bancshares, Inc., a holding company which, in turn, is the

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majority shareholder of the Bank. Proffitt, a co-founder of

the Bank, served as its director from the date it was chartered in 1971 until the FDIC removed him in 1998. In July

1989 Charles and Nancy Boling, customers of the Bank who

were in the motel business in Gatlinburg at the time, approached Bank president Tommy Bush to discuss a loan to

purchase the Glenstone Lodge (Lodge), a hotel which was

then in bankruptcy. The Bolings requested complete confidentiality about the loan and all information they furnished to

the Bank. See Findings of Fact, Chancery Court for Sevier

County, TN 3 (Feb. 17, 1992). They specifically expressed

concern that some members of the Bank's board of directors

(Board) who were also in the motel business might be interested in bidding on the Lodge. See id. Bush promised the

Bolings that no director who had an interest in purchasing

the Lodge would see any of the information they provided or

participate in the consideration of their application for a loan.

See id. at 3-4. A few days after their initial meeting, Bush

informed the Bolings that he had checked with the Board and

no member was interested in buying the Lodge. The Bolings

then applied for a $4.5 million loan and provided the Bank

with financial information, including their personal financial

statements and detailed projections of income and expenses

for operation of the Lodge. See id. at 4. The Bank Board

authorized Bush to investigate whether additional financing

could be obtained from other lenders since the requested loan

amount exceeded the Bank's $1.5 million loan-to-one-borrower

limit. These efforts failed and, after several months, Bush

stopped looking for additional loan funds, although the Bolings remained interested in buying the Lodge. See Administrative Law Judge's (ALJ) Recommended Decision 14 (Feb.

12, 1998).

In December 1989, unknown to the Bolings, Proffitt joined

the Foley Group, a group of investors interested in acquiring

the Lodge. At the time, Proffitt advised Bush only that he

was considering joining the Foley Group. In early 1990

Proffitt participated with the Foley Group in submitting

several unsuccessful offers to purchase the Lodge from the

bankruptcy trustee. At least one other member of the Bank

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Board was at that time aware of Proffitt's participation in the

Foley Group. See Proffitt's Statement of Disputed and Omitted Facts 4 (Aug. 4, 1997).

Meanwhile, in January 1990 the Bolings submitted a revised loan request to the Bank. Bush considered the Bolings'

request a new package because they requested only a $4

million loan package (with the Bank continuing to provide

$1.5 million) and offered different primary collateral. On

March 7, 1990 the Bank Board, including Proffitt, met to

formally consider the Bolings' loan request. Bush asked any

Board member who was interested in purchasing the Lodge

to leave the room. Proffitt failed to leave the room or

disclose his conflicting interest in the Foley Group. Bush

then distributed the Bolings' confidential information to each

Board member. The Bank Board, including Proffitt, unanimously approved the Bolings' loan package. On March 12,

1990 the Bank issued a written loan commitment to the

Bolings in the amount of $1.5 million.

The foreclosure sale of the Lodge was scheduled to be held

on March 30, 1990. On March 27, 1990 Charles Boling went

to Bush's office and advised him that a Kentucky bank had

informally approved a participating loan for the additional

amount needed. Proffitt, who was in Bush's office at the

time, listened to the discussion between Boling and Bush,

including Boling's strategy for bidding at the auction. See

FDIC's Decision and Order 4 (Oct. 6, 1998). Because the

Lodge was subject to a $100,000 tax lien, Boling told Bush

that $3.4 million was their top bid. After Boling left Bush's

office, Proffitt informed Bush of his Foley Group connection.

Bush told Proffitt to inform the Bolings of his conflict but he

did not do so. On March 30, 1990 the foreclosure sale of the

Lodge took place. The first mortgagee, the Foley Group and

the Bolings were the only bidders. The Bolings bid their

maximum of $3.4 million. The Foley Group then bid $3.405

million and acquired the Lodge.

That night the Bolings learned for the first time that

Proffitt belonged to the Foley Group. In July 1990 they filed

a lawsuit against the Bank, Proffitt and Bush, alleging inter

alia breach of fiduciary duty and fraud. In February 1992

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the state trial court entered judgment against Proffitt and the

Bank. In August 1993 the Tennessee Court of Appeals

reversed the trial court's judgment, concluding that Proffitt's

fraud had not caused the Bolings any damage.1 See Boling v.

Tennessee State Bank, 1993 WL 305824 (Tenn. Ct. App. Aug.

11, 1993). In November 1994 the Tennessee Supreme Court

reversed the intermediate appellate court's decision, see Boling v. Tennessee State Bank, 890 S.W.2d 32 (Tenn.1994), and

reinstated the judgment against Proffitt for fraud because he

willfully violated his fiduciary duties. The court reduced the

compensatory damages award to $14,825 (representing the

Bolings' costs of bid preparation) against the Bank and

Proffitt jointly and upheld the $250,000 punitive damages

award against the Bank and the punitive damages award in

the same amount against Proffitt.

On December 18, 1996, more than six years after Proffitt's

actions, the FDIC issued a Notice of Intention to Remove

from Office and to Prohibit from Further Participation (Removal and Prohibition Notice), charging Proffitt with "violations of law, unsafe or unsound banking practices, and/or ...

breaches of fiduciary duty." Removal and Prohibition Notice

1 (Dec. 18, 1996). In response to Proffitt's motion for summary disposition, the ALJ found that Proffitt had violated

section 8(e)2 and recommended that Proffitt be removed from

__________

1 Because the court determined that Proffitt had not damaged the

Bolings, it also concluded that the Bank was not liable.

2 Section 8(e) authorizes the FDIC to remove a "party from office

or to prohibit any further participation ... in the conduct of the

affairs of any insured depository institution"

(1) [w]henever [it] determines that--

(A) any institution-affiliated party has, directly or indirectly--

(i) violated

(I) any law or regulation;

....

membership on the Bank Board and prohibited from further

participation in the banking business. See ALJ's Proposed

Order 19-20 (Feb. 12, 1998). The ALJ rejected Proffitt's

assertion that the FDIC's removal and prohibition action was

barred by the five-year statute of limitations prescribed in 28

U.S.C. s 2462 (section 2462).3 The ALJ found section 2462

inapplicable because it conflicts with the six-year limitations

period imposed by 12 U.S.C. s 1818(i)(3).4 See ALJ's Recom-

__________

(B) by reason of the violation, practice, or breach described

in any clause of subparagraph (A)--

(i) such insured depository institution or business institution has suffered or will probably suffer financial loss or

other damage;

(ii) the interests of the insured depository institution's

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depositors have been or could be prejudiced; or

(iii) such party has received financial gain or other

benefit by reason of such violation, practice, or breach;

and

(C) such violation, practice, or breach-

(i) involves personal dishonesty on the part of such

party;....

12 U.S.C. s 1818(e).

3 28 U.S.C. s 2462 provides:

Except as otherwise provided by Act of Congress, an action,

suit or proceeding for the enforcement of any civil fine, penalty,

or forfeiture, pecuniary or otherwise, shall not be entertained

unless commenced within five years from the date when the

claim first accrued if, within the same period, the offender or

the property is found within the United States in order that

proper service may be made thereon.

4 12 U.S.C. s 1818(i)(3) provides:

The resignation, termination of employment or participation, or

separation of an institution-affiliation party (including a separation caused by the closing of an insured depository institution)

shall not affect the jurisdiction and authority of the appropriate

Federal banking agency to issue any notice and proceed under

this section against any such party, if such notice is served

before the end of the 6-year period beginning on the date such

mended Decision 2 (Feb. 12, 1998). On October 6, 1998 the

FDIC affirmed the ALJ's removal and prohibition decision

but determined that section 2462 was inapplicable for a

different reason, namely, that a "removal and prohibition

action is intrinsically remedial ... and can be brought 'whenever' the statutory conditions are satisfied." FDIC's Decision

and Order 16 (Oct. 6, 1998). The removal order went into

effect on November 5, 1998. Proffitt petitions this court for

review.

II.

Our standard of review comes from the Administrative

Procedure Act (APA), 5 U.S.C. s 706(2)(E). "Applying the

standards set forth in the Administrative Procedure Act ...

we will set aside the [FDIC's] factual findings only if unsupported by substantial evidence on the record as a whole, 5

U.S.C. s 706(2)(E) (1994); we will set aside the [FDIC's]

legal conclusions only if 'arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law,' id.

s 706(2)(A)." Pharaon v. Board of Governors of Fed. Reserve

Sys., 135 F.3d 148, 152 (D.C. Cir. 1998); see also 12 U.S.C.

s 1818(h) (2) (APA applies to section 8(e) proceeding). When

a statute is administered by more than one agency, a particular agency's interpretation is not entitled to Chevron deference. See Bowen v. American Hosp. Ass'n, 476 U.S. 610, 643

n.30 (1986) (because multiple agencies promulgated rules

under statute, "there is thus not the same basis for deference

predicated on expertise as we found" in Chevron); Salleh v.

Christopher, 85 F.3d 689, 692 (D.C. Cir. 1996) (no Chevron

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deference applied to agency's interpretation of statute it

administers "when more than one agency is granted authority

to interpret the same statute"). "Because s 2462 is a statute

of general applicability rather than one whose primary administration has been delegated to the [FDIC], we interpret it de

novo." Johnson, 87 F.3d at 486 (citation omitted).

__________

party ceased to be such a party with respect to such depository

institution.

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Proffitt argues that the FDIC's section 8(e) removal and

prohibition action imposes a penalty and is therefore barred

by section 2462's five-year statute of limitations because the

FDIC's claim "first accrued" in 1990 but it failed to take

action until 1996. The FDIC responds that section 2462 does

not apply to a section 8(e) removal and prohibition action

because the action is remedial. In the alternative, the FDIC

argues that it moved against Proffitt within five years of

when the Bank "suffered financial loss" under section

8(e)(1)(B)(i). 12 U.S.C. s 1818(e)(1)(B)(i).

A. Section 8(e) action imposes penalty

In 3M Co. v. Browner, 17 F.3d 1453, 1457 (D.C. Cir. 1994),

the court held that section 2462 applies to any administrative

proceeding " 'for the enforcement of' a civil penalty." In 3M

the Environmental Protection Agency (EPA) assessed civil

fines against the 3M company eight years after the company

was found to have first violated the Toxic Substances Control

Act. The court held that section 2462 limited the civil fines

and penalties to those violations occurring within five years of

the EPA's action. More recently, in Johnson v. SEC, 87 F.3d

484, 491 (D.C. Cir. 1996), we defined a section 2462 penalty as

a sanction used to punish an individual "for unlawful or

proscribed conduct, going beyond compensation of the

wronged party."5 There we concluded that the Securities and

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5 The Office of the Comptroller of the Currency (OCC) as amicus

urges the court to reconsider 3M and Johnson in light of the

Supreme Court's holding in Hudson v. United States, 522 U.S. 93

(1997). In Hudson the Court overturned its decision in United

States v. Halper, 490 U.S. 435 (1989), holding that the double

jeopardy clause applies only to criminal cases. 3M, however, does

not employ Halper's reasoning. Furthermore, in Johnson we explicitly rejected the argument that section 2462's penalty test is the

double jeopardy punishment test, noting that the test for punishment "in various constitutional contexts" does "not control the

question of whether license suspension is a penalty for purposes of

s 2462." Johnson, 87 F.3d at 491.

Nevertheless, the FDIC argues that three other Supreme Court

cases equate the double jeopardy punishment test and the section

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Exchange Commission's six-month license suspension of

Johnson, a stock broker, imposed a penalty within section

2462 because the suspension went "beyond compensation of

the wronged party" and because the SEC had not focused on

Johnson's current competence or risk to the public. Id. The

FDIC distinguishes Johnson, contending that its expulsion of

Proffitt is remedial because it is a permanent suspension

designed to protect the public, unlike the SEC's temporary

suspension of Johnson. Nevertheless, as Johnson noted, "[i]t

is clearly possible for a sanction to be 'remedial' in the sense

that its purpose is to protect the public, yet not be 'remedial'

because it imposes a punishment going beyond the harm

inflicted by the defendant." Id. at 491 n.11 (citing In re

Ruffalo, 390 U.S. 594, 550 (1968)). Although the FDIC's

expulsion of Proffitt from the banking industry had the dual

effect of protecting the public from a dishonest banker and

punishing Proffitt for his misconduct, its punitive purpose

plainly goes "beyond compensation of the wronged party."

Id. at 488.

__________

2462 penalty test. See Rex Trailer Co. v. United States, 350 U.S.

148, 149 n.2 (1956); United States v. Hougham, 364 U.S. 310, 313

(1960) (following Rex Trailer); Koller v. United States, 359 U.S. 309

(1959) (per curiam decision following Rex Trailer). In Rex Trailer

the company was criminally fined for fraudulently purchasing motor

vehicles. The United States then sued the company civilly for the

same actions. The company challenged the civil penalties as violative of the double jeopardy clause. The lower court held that the

monetary relief sought was civil in nature and therefore did not

violate the double jeopardy clause. The Supreme Court granted

certiorari to resolve a circuit conflict over whether the civil sanction

(monetary relief) also constituted a penalty under section 2462.

The Court held that the monetary sanction was "civil in nature" and

therefore not barred by the double jeopardy clause but the Court

did not expressly address section 2462. Rex Trailer, 350 U.S. at

151. The FDIC argues that the Court thus equated the double

jeopardy punishment and section 2462's tests. We disagree. Although in Rex Trailer the Supreme Court may have implicitly

recognized a connection between the double jeopardy punishment

test and the section 2462 penalty test, the Court did not indicate

that the two tests are identical.

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That the expulsion sanction is punitive is further manifested by the fact that the FDIC did not act for more than six

years after Proffitt's misdeeds. See id. at 490 n.9 ("If the

[agency] really viewed [the defendant] as a clear and present

danger to the public, it is inexplicable why it waited more

than five years to begin the proceedings to suspend her.")

(emphasis in original). The FDIC could have taken action as

early as 1990 under the "will probably suffer" language of

section 8(e)(1)(B)(i) or perhaps under section 8(e)(1)(B)(ii),

asserting "the interests of the insured depository institution's

depositors ... could be prejudiced." The FDIC admits that

it monitored the Bolings' lawsuit after it was filed in July

1990 and was aware of Proffitt's actions at that time through

newspaper reports. See FDIC's Opp. Br. to Summary Disposition 1-2 (Aug. 1, 1997). The FDIC might have determined

in 1990 that, because of Proffitt's actions, the Bank "probably

will suffer financial loss" as a result of an adverse verdict or

settlement or at least that Proffitt "received financial gain or

other benefit." 12 U.S.C. s 1818(e)(1)(B)(iii). If in fact

Proffitt posed the threat to the public that the FDIC portrays, it presumably would have removed him sooner rather

than later. Instead, it held off for six years with Proffitt

participating in the Bank's business all the while.

The FDIC's position is further undermined by the focus of

its proceeding. In Johnson, we noted that a "sanction would

less resemble punishment if the [agency] had focused on

Johnson's current competence or the degree of risk she posed

to the public." Id. at 489. The FDIC, however, based its

action solely on Proffitt's long past conduct and made no

attempt to evaluate his present fitness or competence. It

counters that Proffitt had ample opportunity to present any

information he desired regarding his current competence but

failed to do so. The FDIC's argument might carry more

weight if it had given Proffitt notice that his current competence and/or risk was at issue. Instead, its notice focused

solely on Proffitt's prior conduct.6 See Removal and Prohibi-

__________

6 Moreover, if, as the FDIC maintains, Proffitt's current competence was in fact at issue, he was entitled to fair notice and an

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tion Notice 10-11 p p 32-37. While a serious offense, even

long past, may indicate Proffitt's current risk to the public,

that offense cannot alone determine his fitness almost a

decade later. See 3M, 17 F.3d at 1457 ("In a country where

not even treason can be prosecuted, after a lapse of three

years, it could scarcely be supposed that an individual would

remain for ever liable to a pecuniary forfeiture.") (quoting

Adams v. Woods, 6 U.S. (2 Cranch) 336, 341 (1805) (Marshall,

C.J.)).

Finally, the FDIC argues that the six-year limitations

period imposed by section 1818(i)(3), see supra n.4, indicates

that the Congress did not intend section 2462's five-year

period to apply to section 8(e) proceedings. Section 2462

limits any "action, suit or proceeding for the enforcement of

any ... penalty" but also states "[e]xcept as otherwise provided by Act of Congress." Both the ALJ and the FDIC

concluded that section 1818(i)(3) fits the exception. We disagree. In CityFed Fin. Corp. v. OTS, 58 F.3d 738, 743 (D.C.

Cir. 1995), we held that section 1818(i)(3) was enacted "solely

to address the effects of ... Stoddard v. Board of Governors,

868 F.2d 1308 (D.C. Cir. 1989)." In Stoddard, the court had

held that banking regulatory agencies lost enforcement jurisdiction over individuals who left the industry. Then, the

Congress enacted section 1818(i)(3) as part of the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989

(FIRREA), Pub. L. No. 101-73, 103 Stat. 183, to ensure that,

so long as the agency acted within six years of his departure,

a banker could not avoid sanctions by simply severing his ties

with a financial institution. Thus, section 1818(i)(3) was not

intended to preempt section 2462 but instead to clarify the

jurisdiction of banking regulatory agencies to pursue fleeing

bankers. Nor is the application of section 2462 to section 8(e)

proceedings inconsistent with section 1818(i)(3). Contrary to

the FDIC's assertion, application of both section 2462 and

section 1818(i)(3) to a section 8(e) proceeding does not treat a

banker who leaves an institution more harshly than one who

__________

opportunity to be heard. See Green v. McElroy, 360 U.S. 474, 496

(1959). The FDIC failed to provide it.

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remains with the institution. Section 1818(i)(3) limits the

FDIC's jurisdiction over a former banker to six years after

he leaves the industry while section 2462 requires that any

action imposing a civil penalty against any banker, regardless

whether he has left the industry, must be initiated no later

than five years from the date the claim "first accrue[s]".

B. Section 2462 accrual

Having concluded that section 2462 applies to the FDIC's

section 8(e) proceeding, we must now determine when the

five-year limitations period began to run, i.e., when the claim

accrued. "A claim normally accrues when the factual and

legal prerequisites for filing suit are in place." 3M, 17 F.3d

at 1460 (citations omitted). A section 8(e) removal and

prohibition action has three prongs: misconduct, effect and

culpability. See Oberstar v. FDIC, 987 F.2d 494, 500 (8th Cir.

1993) ("In order to impose [section 8(e)(1)'s] sanction, the

FDIC must establish each of the three statutory criteria--

'misconduct' under s 1818(e)(1)(A), 'effect' under subparagraph (B), and 'culpability' under subparagraph (C)."); see

also Pharaon, 135 F.3d at 157 (adopting Oberstar's "so-called

effects prong"); Cousin v. OTS, 73 F.3d 1242, 1247 (2d Cir.

1996) ("These three sub-sections ... have come to be known

as the (1) 'misconduct,' (2) 'effect,' and (3) 'culpability' prongs

of the prohibition test."); Grubb v. FDIC, 34 F.3d 956, 961

(10th Cir. 1994); Seidman v. OTS, 37 F.3d 911, 929 (3d Cir.

1994). Because misconduct and effect are separate prongs,

the underlying conduct may not always immediately effect a

section 8(e) violation and thus the accrual of the claim. The

same misconduct can produce different effects at different

times, resulting in separate section 8(e) claims and separate

accruals. As the court recognized in 3M, the question of

accrual "becomes complex where considerable time intervenes" between the underlying conduct and the harmful

effect. 3M, 17 F.3d at 1460.

Section 8(e) expressly gives options to the FDIC. It

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stances. For example, section 8(e)'s effect prong is satisfied

when:

(i) such insured depository institution or business institution has suffered or probably will suffer financial

loss or other damage;

(ii) the interests of the depository institution's depositors have been or could be prejudiced; or

(iii) such party has received financial gain or other

benefit by reason of such violation, practice or

breach....

12 U.S.C. s 1818(e)(1)(B) (emphasis added). Plainly, there is

substantial evidence that Proffitt "violated [the] law" when he

breached his fiduciary duty by failing to disclose a conflict of

interest to a Bank customer, 12 U.S.C. s 1818(e)(1)(A); that

his breach of fiduciary duty caused the Bank to suffer "financial loss," id. s 1818(e)(1)(B); and that his breach of fiduciary

duty at least "involve[d] personal dishonesty." Id.

s 1818(e)(1)(C). Proffitt's challenge does not extend to the

FDIC's findings that the misconduct and culpability prongs

were satisfied by Proffitt's 1990 conduct. See Petitioner's Br.

30. Proffitt argues instead that the effect prong was also

satisfied in 1990, thus barring the FDIC's 1996 action, because the FDIC plainly could have determined in 1990 that

the Bank "will probably suffer financial loss" because of

Proffitt's actions. The FDIC responds that the effect prong

did not begin section 8(e)'s accrual until the Tennessee Supreme Court rendered its final judgment in the Bolings'

lawsuit in 1994. The question, then, is when was the effect

prong met.7

Last year in Pharaon, we interpreted section 8(e)(1)'s

effect prong. There the defendant argued that section

8(e)(1)(B) required the Federal Reserve Board (FRB) to

__________

7 Because a section 8(e) proceeding can be initiated by more than

one agency, namely, the FDIC, the OCC, the Federal Reserve

Board and the Office of Thrift Supervision, see Wachtel v. OTS, 982

F.2d 581, 585 (D.C. Cir. 1993), we do not extend Chevron deference

to its interpretation of the statute. See Bowen, 476 U.S. at 643

n.30.

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demonstrate the exact amount of harm in order to satisfy the

effect prong. The court rejected that interpretation because

"[t]he plain language of the statute provides otherwise." Id.

at 157. "Section 1818(e)(1)(B) allows the FRB to impose an

order of prohibition not only if the insured institution 'suffered ... financial loss or other damage' ... but also if the

institution 'will probably suffer financial loss or other damage.' " Id. Under Pharaon, then, the effect prong can be

met by either potential or actual "financial loss or other

damage." See also Brickner v. FDIC, 747 F.2d 1198, 1202-03

(8th Cir. 1984) (Section 1818(e)(1)'s use of " 'willful disregard'

and 'continuing disregard' present two distinct, alternative

standards for removal. The use of the disjunctive 'or' between the words 'willful' and 'continuing' in the statute reveals a clear intent to make either one an offense.").

Moreover, if we applied one statute of limitations to all of

the alternative circumstances included in section 8(e)(1)(B),

we would render the "has suffered" language superfluous.

Whenever an institution "has suffered" financial loss, an

action based on the "will probably suffer" language would

have been available before the financial loss in fact occurred.

If the statute of limitations began running as to all effects as

soon as the first effect occurred, the "will probably suffer"

violation would always trigger the statute's accrual. Separate

accrual for each alternative effect gives meaning to all of the

statutory language. See Connecticut Dep't of Income Maintenance v. Heckler, 471 U.S. 524, 530 n.15 (1985) ("It is a

familiar principle of statutory construction that courts should

give effect, if possible, to every word that Congress has used

in a statute.").

Finally, Proffitt argues that because the FDIC could have

brought a section 8(e) removal and prohibition action in 1990,

it was required to do so under the statute. The statute,

however, expressly authorizes the FDIC to take action

"whenever" it determines that the statutory prongs are satisfied. Section 8(e)'s legislative history, spare as it is, supports

an expansive view of the enforcement options available to the

FDIC (and the other banking regulatory agencies). In 1966,

when the Congress first gave banking regulators removal

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authority, it allowed them little latitude. See 112 Cong. Rec.

20,083 (1966) (quoting Report of Senate Committee on Banking and Currency); Anonymous v. FDIC, 619 F. Supp. 866,

871-72 (D.D.C. 1985) (summarizing section 8(e)'s legislative

history). With the enactment of FIRREA, however, the

Congress attempted to lift some of the restrictions it had

originally imposed on banking regulators. Before FIRREA

the banking regulatory agencies were required to demonstrate that the "bank has suffered or will probably suffer

substantial financial loss or other damage or that the interests of its depositors could be seriously prejudiced." 12

U.S.C. s 1818(e) (1988). In FIRREA, the Congress changed

the language to "such [bank] has suffered or will probably

suffer financial loss or other damage; [or] the interests of the

[bank's] depositors have been or could be prejudiced." 12

U.S.C. s 1818(e)(1)(B)(i), (ii). The Committee Report explained the legislative purpose in making the change: "[A]n

agency [could] proceed with [a] removal or prohibition action

where warranted, without having to quantify losses to the

institution or the degree of prejudice to depositors...."

H.R. Rep. 101-54, at 392, reprinted in 1989 U.S.C.C.A.N. 188.

The change was intended to:

allow an agency to proceed with such an enforcement

action whenever the institution has suffered any financial

loss and has been harmed. The higher threshold found

in current law has resulted in the FDIC losing cases at

an early stage because the losses were not high enough

... or because the FDIC could not quantify the losses.... The regulators must be given the opportunity to

proceed before losses become even greater.

Id. The Conference Report iterated that the banking regulatory agencies should be able to take action "when an institution has been harmed or the interests of depositors have been

prejudiced without requiring the agencies to quantify the

harm or prejudice." H.R. Rep. No. 101-222, at 439 (1989),

reprinted in 1989 U.S.C.C.A.N. 478. The legislative history

also notes that FIRREA was enacted in part to "expand,

enhance, and clarify enforcement powers of the financial

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institution regulatory agencies." H.R. Rep. No. 101-54, at

311, reprinted in 1989 U.S.C.C.A.N. 107. If the FDIC were

limited to acting within five years of determining that the

Bank "will probably suffer financial loss," its burden would

have been greater (establishing probability) than if it is also

authorized to wait until the Bank "has suffered financial loss"

(establishing actuality). To require the FDIC to speculate

whether the Bank "will probably suffer" harm or forfeit the

removal action altogether would impose upon the FDIC the

kind of quantification that the Congress sought to eliminate

with FIRREA. While the FDIC might well have brought an

action earlier under the "will probably suffer" language, its

failure to do so does not render untimely, and therefore,

unauthorized, its action based on the later occurring effect.

Because the FDIC took action within five years of when the

Bank in fact "suffered" financial loss in 1994, its section 8(e)

action against Proffitt is not barred by section 2462's fiveyear statute of limitations.8

C. Due Process

Finally, Proffitt argues that the FDIC violated his right to

due process because it evaluated neither his current competence nor whether he presented a current risk of harm. But

Proffitt also concedes that his due process claim fails if we

conclude that the removal and prohibition action imposes a

penalty. See Petitioner's Br. 35-36; Reply Br. 8. Because

we have so concluded, Proffitt's due process argument fails.

For the foregoing reasons, we conclude that the FDIC's

removal and prohibition action was properly taken and, accordingly, Proffitt's petition for review is

Denied.

__________

8 Although the FDIC does not make the argument, it is not

limited to taking action based on the institution's "financial loss"--

the statute also includes "other damage." 12 U.S.C.

s 1818(e)(1)(B)(i).

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Silberman, Circuit Judge, dissenting: I agree with the

majority's conclusion that Johnson v. SEC, 87 F.3d 484 (D.C.

Cir. 1996), controls this case, and requires us to apply section

2462's five-year limitations period to the FDIC's removal

action against Proffitt. While the FDIC makes a strong

argument for the contrary result based on historical evidence

that state courts declined to apply general statutes of limitations to disbarment proceedings, we considered and rejected

this argument in Johnson and are in my view bound by that

determination. See id. at 488 n.6. However, I do not agree

with my colleagues' determination that section 8(e) allows the

FDIC to bring an enforcement action against Proffitt seven

years after his misconduct. The majority correctly recognizes that we may not defer to the FDIC's interpretation of

section 8(e) because it is a statute administered by more than

one agency, but proceeds to afford the FDIC an even greater

deference by giving the agency, as a practical matter, the

power to determine when the statute of limitations will be

triggered.

Relying on a construction of section 8(e) that permits

banking regulatory agencies to bring a removal action either

at the point that it might be thought that a bank would

probably suffer a financial loss or at some later time that an

actual financial loss can demonstrated (given the vagaries of

litigation and other imponderables it could be decades after

the act), the majority concludes that it is within a regulatory

agency's discretion as to which eventuality begins the running

of the statute. In other words, the majority reads the statute

as creating at least two separate1 causes of action and gives

__________

1 I say "at least" because the majority observes that "[t]he same

misconduct can produce different effects at different times, resulting in separate section 8(e) claims and separate accruals." Maj. Op.

at 12. That proposition treats Proffitt's misconduct as something

resembling a "continuing violation" like a conspiracy or kidnapping,

with the statute of limitations period starting anew at each moment

that a different "effect" of the increasingly historical misconduct

appears. This is not only a peculiar way of understanding a

violation that arose out of a discrete series of misdeeds by a banker,

it is one that has been discouraged by the Supreme Court. See

Toussie v. United States, 397 U.S. 112, 115 (1970) (a statutory

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the regulatory agencies an option to choose to bring an action

based on a probable financial loss or an actual financial loss.

That is not all. Since the statute allows a removal action

based on probable or actual other damage, which would

certainly include reputational harm, the agency presumably

could also wait until sufficient newspaper articles appeared

(which incidentally embarrassed the regulatory agency) and

then determine that actual reputational harm to the depository institution had occurred. Add to this the majority's rather

improbable reliance on section 8(e)'s language authorizing an

agency to bring a removal action "whenever" it determines

that the statute's requirements are met, Maj. Op. at 14--

which I take it means that the statute of limitations is

triggered not by objective facts but by a subjective determination of the agency as prosecutor--and one arrives at the

inevitable and astounding conclusion that, on the majority's

view, the statute of limitations for an section 8(e) removal

action begins to run when the agency decides it should begin

to run (making it a non-statute statute reminiscent of the

once infamous non-bank bank, cf. Board of Governors of the

Fed. Reserve Sys. v. Dimension Fin. Corp., 474 U.S. 361, 363

(1986)). With all due respect to my colleagues this interpretation simply will not do.

It seems to me that it is the "three prong" characterization

of the elements of a removal cause of action which leads my

colleagues astray. Section 8(e) actually contemplates only

one act on the part of the wrongdoer, the misconduct which

amounts to a violation of a banking law or regulation. See 12

U.S.C. s 1818(e)(1)(A). To be sure, that act must also have

certain characteristics. Section 8(e)(1)(C) requires that this

act involve personal dishonesty on the part of the target;

innocent mistakes are not grounds for removal. And the

requirement of section 8(e)(1)(B) must be satisfied, which

means that some consequences must flow from the act. But

it does not follow that the so-called "culpability" and "effect"

prongs constitute separate temporal events, as the majority

__________

prohibition should rarely be construed as a continuing violation for

statute of limitations purposes).

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concludes. I think it makes far more sense to think of them

as characteristics of a banker's misconduct, which must be

present at the time of the wrongful act. (Indeed, it seems

that the "culpability prong" could only be established by

reference to the time of a wrongdoer's misconduct.) Just as a

new cause of action would not spring up if evidence of

dishonesty--meeting section 8(e)(1)(C)'s requirement--appeared ten years after a banker's misconduct, a new and

distinct FDIC removal action should not arise at every point

that evidence of new consequences flowing from that misconduct is uncovered. Cf. 3M Co. v. Browner, 17 F.3d 1453,

1460-63 (D.C. Cir. 1994) (rejecting the application of the

"discovery rule" in the context of an agency enforcement

proceeding).

My colleagues believe that such a reading "render[s] the

'has suffered' language [in 1818(e)(1)(B)] superfluous." Maj.

Op. at 14. But this is plainly mistaken. Actual damage to an

institution may or may not be immediately apparent at the

time of the wrongful act; thus the FDIC is also permitted to

bring an action where an institution "will probably suffer

financial loss or other damage" or the depositors "could be

prejudiced" from a banker's misconduct. 12 U.S.C.

s 1818(e)(1)(B) (emphasis added). The majority is right

when it notes that section 8(e)'s language gives enforcement

agencies a great deal of discretion; the obvious purpose of

the statute is to allow the regulatory agencies potentially to

prosecute a wide range of misconduct. Its threshold is so low

that I cannot imagine any violation of law, involving personal

dishonesty on the part of a bank officer, that would not

qualify.2 However, this discretion is relevant to the range of

actions that may be prosecuted, not to the time at which an

agency may bring an enforcement action. To the contrary,

the early running of the statute of limitations seems to me the

inevitable price of section 8(e)'s low threshold; the agencies

have to take the "bitter with the sweet."

As we have recently noted in the very context of an

administrative enforcement proceeding, the statute of limita-

__________

2 Unless, perhaps, the act fortuitously led to a bank profit.

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tions begins to run when the factual and legal prerequisites

for an enforcement action are in place. See 3M, 17 F.3d at

1460. There is no serious question that these prerequisites

were in place at the time of Proffitt's misconduct in 1990; the

FDIC's objection that my reading of the statute would force

it to bring actions too early is ridiculous, given the minimal

hurdle set by the "other damage" language in section

8(e)(1)(B). Nor was there any practical excuse for the

FDIC's behavior in this case. If the FDIC were sincere in

claiming that it delayed its action out of concerns of fairness

given the pending litigation in the Tennessee courts, it could

have sought an agreement with Proffitt tolling the running of

the statute of limitations.

Indeed, the facts presented here aptly demonstrate the

costs of not enforcing statutes of limitations vigorously. The

pressure on courts not to do so is obvious, as it can permit a

wrongdoer to escape his or her just desserts. But ignoring

the limitations on an agency's action creates an undesirable

incentive for government prosecutors to sit on their hands

until some event--typically publicity--induces action.

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