I

104TH CONGRESS

1ST SESSION H. R. 316

To amend the Federal Deposit Insurance Act to clarify the due process

protections applicable to directors and officers of insured depository

institutions and other institution-affiliated parties, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 4, 1995

Mr. MCCOLLUM (for himself, Mr. BACHUS, Mr. CASTLE, Mr. SAM JOHNSON

of Texas, Mr. LEWIS of California, Mr. LINDER, and Mr. MCCRERY) introduced the following bill; which was referred to the Committee on

Banking and Financial Services

A BILL

To amend the Federal Deposit Insurance Act to clarify the

due process protections applicable to directors and officers of insured depository institutions and other institution-affiliated parties, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Lending Enhancement

5 Through Necessary Due Process Act’’.

6 SEC. 2. FINDINGS.

7 The Congress hereby finds the following:
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1 (1) Excessive and groundless litigation against

2 innocent directors and officers of failed financial in3 stitutions is adversely affecting the national economy

4 by creating an environment where bankers are reluc5 tant to make loans.

6 (2) The efforts by Federal banking regulators

7 to impose liability on bank officials for good faith

8 business decisions is impeding our banking system

9 by making it difficult for financial institutions to at10 tract officers and directors.

11 (3) Since 1989, Federal regulators have used

12 enhanced powers to pursue not only culpable individ13 uals but also countless innocent people who are tar14 geted because of their financial condition.

15 (4) Tactics used by regulators to induce settle16 ments include the threat of attachment of assets and

17 the use of taxpayer-funded outside fee counsel to file

18 lawsuits, the costs of which often bankrupt individ19 uals trying to clear their names.

20 (5) Reform of the banking laws are needed to

21 curtail regulatory abuse and to ensure that directors

22 and officers have due process protections and the

23 ability to make good faith lending decisions.
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1 SEC. 3. FACTORS AND STANDARDS FOR CERTAIN ENFORCE2 MENT PROCEEDINGS.

3 Section 8(i) of the Federal Deposit Insurance Act (12

4 U.S.C. 1818) is amended by adding at the end the follow5 ing new paragraphs:

6 ‘‘(5) AFFIRMATIVE DEFENSES APPLICABLE

7 WITH RESPECT TO CERTAIN ADMINISTRATIVE AND

8 JUDICIAL PROCEEDINGS.—In the determination of

9 whether any director, officer, or institution-affiliated

10 party of an insured depository institution has com11 mitted any violation or breach of duty for purposes

12 of this section or section 11(k), the following affirm13 ative defenses shall be available to the director, offi14 cer, or institution-affiliated party in any civil action

15 against the director, officer, or party before a Fed16 eral banking agency or a court of jurisdiction:

17 ‘‘(A) BUSINESS JUDGMENT.—A director,

18 officer, or institution-affiliated party of an in19 sured depository institution shall not be deemed

20 to have committed any violation or breach of

21 duty in the making of any business judgment

22 (without regard to whether such business judg23 ment is later determined to have been in error),

24 if—

25 ‘‘(i) in a case in which the director,

26 officer, or institution-affiliated party had
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1 an interest in the subject of the business

2 judgment, the director, officer, or party—

3 ‘‘(I) disclosed that interest at or

4 before the time the business judgment

5 was made; or

6 ‘‘(II) abstained from any vote

7 taken in connection with such busi8 ness judgment or from otherwise par9 ticipating in making the business

10 judgment;

11 ‘‘(ii) at or before the time the busi12 ness judgment was made, the director, offi13 cer, or institution-affiliated party made

14 such inquiry about the subject of the busi15 ness judgment as a reasonably prudent

16 person would have made under the cir17 cumstances;

18 ‘‘(iii) after being put on reasonable

19 notice of a need to act, the director, offi20 cer, or institution-affiliated party took such

21 actions as a reasonably prudent person

22 would have taken under the circumstances;

23 and

24 ‘‘(iv) the director, officer, or institu25 tion-affiliated party acted in good faith.
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1 ‘‘(B) REGULATORY APPROVAL.—A direc2 tor, officer, or institution-affiliated party of an

3 insured depository institution shall not be

4 deemed to have committed any violation or

5 breach of duty if any examiner or other rep6 resentative of an appropriate Federal banking

7 agency or State bank supervisor, upon full and

8 accurate disclosure of the relevant facts, ap9 proved the good faith practice, action, or omis10 sion which is alleged to be the violation or

11 breach, whether or not such approval was com12 municated to the director, officer, or institution13 affiliated party or any other person at such in14 stitution.

15 ‘‘(C) UNFORESEEABLE ECONOMIC CONDI16 TIONS.—A director, officer, or institution-affili17 ated party of an insured depository institution

18 shall not be deemed to have committed any vio19 lation or breach of duty if—

20 ‘‘(i) unforeseeable economic condi21 tions, which develop after the occurrence of

22 the practice, action, or omission which is

23 alleged to be a violation or breach, were

24 the proximate cause of any loss experi25 enced by the institution; and
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1 ‘‘(ii) the director, officer, or institu2 tion-affiliated party acted in good faith.

3 ‘‘(6) MINIMUM STANDARD FOR ORDER OF PRO4 DUCTION OF PERSONAL FINANCIAL INFORMATION.—

5 ‘‘(A) IN GENERAL.—Except as provided in

6 subparagraph (B), a Federal banking agency,

7 including the Resolution Trust Corporation in

8 such corporation’s capacity as conservator or

9 receiver of an insured depository institution,

10 may not seek to obtain, directly or indirectly,

11 and no court (with respect to any request from

12 any such agency or corporation) may order the

13 production of, the personal financial records of

14 any person for the agency unless the head of

15 the agency or corporation (or the designee of

16 the head of the agency or corporation), submits

17 a written finding which is disclosed to such per18 son and certified to an appropriate court of ju19 risdiction, and the court through a de novo

20 finding determines, that the agency has reason21 able cause to believe that—

22 ‘‘(i) the person whose records are

23 being sought has committed a violation for

24 which a civil penalty may be imposed

25 under paragraph (2) or has breached a
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1 duty owed to an insured depository institu2 tion; and

3 ‘‘(ii) the person’s financial condition is

4 undergoing or is likely, within 6 months of

5 the date of the request for the production

6 of financial records, to undergo a material

7 change.

8 ‘‘(B) EXCEPTION.—Subparagraph (A)

9 shall not apply with respect to a request for the

10 production of financial records by an appro11 priate Federal banking agency of any person—

12 ‘‘(i) in connection with an investiga13 tion of the person by the agency pursuant

14 to section 7(j); or

15 ‘‘(ii) after an administrative or judi16 cial determination, on a record after oppor17 tunity for agency hearing, that the person

18 has committed a violation for which a civil

19 penalty may be assessed under paragraph

20 (2).’’.

21 SEC. 4. DUE PROCESS PROTECTIONS RELATING TO AT22 TACHMENT OF ASSETS.

23 Section 8 of the Federal Deposit Insurance Act (12

24 U.S.C. 1818) is amended—
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1 (1) by striking subsection (i)(4)(B) and insert2 ing the following new subparagraph:

3 ‘‘(B) STANDARD.—

4 ‘‘(i) SHOWING.—Rule 65 of the Fed5 eral Rules of Civil Procedure shall apply

6 with respect to any proceeding under sub7 paragraph (A).

8 ‘‘(ii) STATE PROCEEDING.—If, in the

9 case of any proceeding in a State court,

10 the court determines that rules of civil pro11 cedure available under the laws of such

12 State provide substantially similar protec13 tions to such party’s right to due process

14 as Rule 65 of the Federal Rules of Civil

15 Procedure, the relief sought under sub16 paragraph (A) may be requested under the

17 laws of such State.’’; and

18 (2) in subsection (b), by adding at the end the

19 following new paragraph:

20 ‘‘(10) STANDARD FOR CERTAIN ORDERS.—No

21 authority under this subsection or subsection (c) to

22 prohibit any institution-affiliated party from with23 drawing, transferring, removing, dissipating, or dis24 posing of any funds, assets, or other property may
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1 be exercised unless the agency meets the standards

2 of Rule 65 of the Federal Rules of Civil Procedure.’’.

3 SEC. 5. DIRECTOR AND OFFICER LIABILITY.

4 Section 11(k) of the Federal Deposit Insurance Act

5 (12 U.S.C. 1821(k)) is amended by adding at the end the

6 following new sentence: ‘‘Notwithstanding the preceding

7 sentence, a civil action for monetary damages for losses

8 due to a disregard of a duty of care may not be brought

9 against any director or officer of any insured depository

10 institution by the Corporation in any capacity described

11 in clause (1), (2), or (3) of the 1st sentence of this sub12 section under any provision of State law, unless the stand13 ard of disregard required to be demonstrated under such

14 provision of law is as great or greater than the standard

15 described in the 1st sentence.’’.

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