I

103D CONGRESS

1ST SESSION H. R. 3661

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

NOVEMBER 22, 1993

Mr. MCCOLLUM (for himself, Mr. LEWIS of California, Mr. SAM JOHNSON of

Texas, Mr. LINDER, Mr. BACHUS of Alabama, Mr. GRAMS, Mr.

MCCRERY, Mr. THOMAS of Wyoming, Mr. MCCANDLESS, and Mr. CASTLE) introduced the following bill; which was referred to the Committee

on Banking, Finance and Urban Affairs

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’’.
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1 SEC. 2. FINDINGS.

2 The Congress hereby finds the following:

3 (1) Excessive and groundless litigation against

4 innocent directors and officers of failed financial in5 stitutions is adversely affecting the national economy

6 by creating an environment where bankers are reluc7 tant to make loans.

8 (2) The efforts by Federal banking regulators

9 to impose liability on bank officials for good faith

10 business decisions is impeding our banking system

11 by making it difficult for financial institutions to at12 tract officers and directors.

13 (3) Since 1989, Federal regulators have used

14 enhanced powers to pursue not only culpable individ15 uals but also countless innocent people who are tar16 geted because of their financial condition.

17 (4) Tactics used by regulators to induce settle18 ments include the threat of attachment of assets and

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

20 lawsuits, the costs of which often bankrupt individ21 uals trying to clear their names.

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

23 curtail regulatory abuse and to ensure that directors

24 and officers have due process protections and the

25 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, of18 ficer, 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, of26 ficer, or institution-affiliated party had an
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1 interest in the subject of the business judg2 ment, 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 business

12 judgment was made, the director, officer,

13 or institution-affiliated party made such

14 inquiry about the subject of the business

15 judgment as a reasonably prudent person

16 would have made under the circumstances;

17 (iii) after being put on reasonable no18 tice of a need to act, the director, officer,

19 or institution-affiliated party took such ac20 tions as a reasonably prudent person would

21 have taken under the circumstances; and

22 (iv) the director, officer, or institu23 tion-affiliated party acted in good faith.

24 (B) REGULATORY APPROVAL.—A director,

25 officer, or institution-affiliated party of an in-
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1 sured depository institution shall not be deemed

2 to have committed any violation or breach of

3 duty if any examiner or other representative of

4 an appropriate Federal banking agency or State

5 bank supervisor, upon full and accurate disclo6 sure of the relevant facts, approved the good

7 faith practice, action, or omission which is al8 leged to be the violation or breach, whether or

9 not such approval was communicated to the di10 rector, officer, or institution-affiliated party or

11 any other person at such institution.

12 (C) UNFORESEEABLE ECONOMIC CONDI13 TIONS.—A director, officer, or institution-affili14 ated party of an insured depository institution

15 shall not be deemed to have committed any vio16 lation or breach of duty if—

17 (i) unforeseeable economic conditions,

18 which develop after the occurrence of the

19 practice, action, or omission which is al20 leged to be a violation or breach, were the

21 proximate cause of any loss experienced by

22 the institution; and

23 (ii) the director, officer, or institution24 affiliated party acted in good faith.
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1 ‘‘(6) MINIMUM STANDARD FOR ORDER OF PRO2 DUCTION OF PERSONAL FINANCIAL INFORMATION.—

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

4 subparagraph (B), a Federal banking agency,

5 including the Resolution Trust Corporation in

6 such corporation’s capacity as conservator or

7 receiver of an insured depository institution,

8 may not seek to obtain, directly or indirectly,

9 and no court (with respect to any request from

10 any such agency or corporation) may order the

11 production of, the personal financial records of

12 any person for the agency unless the head of

13 the agency or corporation (or the designee of

14 the head of the agency or corporation), submits

15 a written finding which is disclosed to such per16 son and certified to an appropriate court of ju17 risdiction, and the court through a de novo

18 finding determines, that the agency has reason19 able cause to believe that—

20 ‘‘(i) the person whose records are

21 being sought has committed a violation for

22 which a civil penalty may be imposed

23 under paragraph (2) or has breached a

24 duty owed to an insured depository institu25 tion; and
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1 ‘‘(ii) the person’s financial condition is

2 undergoing or is likely, within 6 months of

3 the date of the request for the production

4 of financial records, to undergo a material

5 change.

6 ‘‘(B) EXCEPTION.—Subparagraph (A)

7 shall not apply with respect to a request for the

8 production of financial records by an appro9 priate Federal banking agency of any person—

10 ‘‘(i) in connection with an investiga11 tion of the person by the agency pursuant

12 to section 7(j); or

13 ‘‘(ii) after an administrative or judi14 cial determination, on a record after oppor15 tunity for agency hearing, that the person

16 has committed a violation for which a civil

17 penalty may be assessed under paragraph

18 (2).’’.

19 SEC. 4. DUE PROCESS PROTECTIONS RELATING TO AT20 TACHMENT OF ASSETS.

21 Section 8 of the Federal Deposit Insurance Act (12

22 U.S.C. 1818) is amended—

23 (1) by striking subsection (i)(4)(B) and insert24 ing the following new subparagraph:

25 ‘‘(B) STANDARD.—
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1 ‘‘(i) SHOWING.—Rule 65 of the Fed2 eral Rules of Civil Procedure shall apply

3 with respect to any proceeding under sub4 paragraph (A).

5 ‘‘(ii) STATE PROCEEDING.—If, in the

6 case of any proceeding in a State court,

7 the court determines that rules of civil pro8 cedure available under the laws of such

9 State provide substantially similar protec10 tions to such party’s right to due process

11 as Rule 65 of the Federal Rules of Civil

12 Procedure, the relief sought under sub13 paragraph (A) may be requested under the

14 laws of such State.’’; and

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

16 following new paragraph:

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

18 authority under this subsection or subsection (c) to

19 prohibit any institution-affiliated party from with20 drawing, transferring, removing, dissipating, or dis21 posing of any funds, assets, or other property may

22 be exercised unless the agency meets the standards

23 of Rule 65 of the Federal Rules of Civil Procedure.’’.
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1 SEC. 5. DIRECTOR AND OFFICER LIABILITY.

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

3 (12 U.S.C. 1821(k)) is amended by adding at the end the

4 following new sentence: ‘‘Notwithstanding the preceding

5 sentence, a civil action for monetary damages for losses

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

7 against any director or officer of any insured depository

8 institution by the Corporation in any capacity described

9 in clause (1), (2), or (3) of the 1st sentence of this sub10 section under any provision of State law, unless the stand11 ard of disregard required to be demonstrated under such

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

13 described in the 1st sentence.’’.

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