Opinion ID: 686728
Heading Depth: 2
Heading Rank: 2

Heading: Seeking Deep Pockets: An Improper Purpose?

Text: 77 The Directors also assail the legitimacy of one of the Landmark investigation's four stated purposes--determining whether the Directors have sufficient net worth to warrant an action against them. The illegitimacy of this purpose, they contend, taints the entire investigation and provides cause for quashing of the subpoenas. 78 Before addressing the legitimacy of this investigative purpose, we note that the Directors' argument sweeps too broadly. Even if the Directors can show that one purpose underlying the subpoenas is improper, enforcement of the subpoenas is called for nonetheless so long as other, proper purposes exist. FTC v. Carter, 636 F.2d 781, 789 (D.C.Cir.1980); and see Donaldson v. United States, 400 U.S. 517, 532-33, 91 S.Ct. 534, 543-44, 27 L.Ed.2d 580 (1971) (noting that taxpayer could claim that the IRS sought material for an improper purpose only if that purpose were the sole object of the investigation). Thus, this argument of the Directors threatens only those provisions in the subpoenas which depend solely on the FDIC's cost-effectiveness rationale. Although the Directors have identified no such sections, we think paragraphs 18 to 21, 24, and 25 fit this description. 5 Accordingly, if we were to determine that the FDIC's cost-effectiveness rationale were improper, we would be required to quash these provisions of the subpoenas. 79 We do not find the FDIC's purpose improper, however, in the context of this investigation. The Directors rely on Resolution Trust Corp. v. Walde, 18 F.3d 943 (D.C.Cir.1994), in which the D.C. Circuit considered a similar investigation directed at former directors and officers of failed S & Ls by the Resolution Trust Corporation (the RTC). The court held that the RTC does not have the authority to subpoena personal financial information for the purpose of determining a former director's net worth unless the agency has set forth at least an articulable suspicion that a former officer or director is liable to the failed institution. Id. at 949 (emphasis added). We concur in the Walde court's reasoning (which applies equally to FDIC investigations), 6 but we conclude that the FDIC has complied with the standard set out in Walde. 80 The FDIC is authorized to conserve the assets and property of [the failed] institution, 12 U.S.C. Sec. 1821(d)(2)(B)(iv) (Supp. III 1991), and, under 12 U.S.C. Sec. 1821(d)(2)(I)(i), it has broad authority to issue subpoenas in furtherance of any power, authority, or duty with respect to an insured depository institution. See also Walde, 18 F.3d at 948 (noting that the RTC has the same powers). To the FDIC, these sections, in conjunction with the other provisions of the FDIC statute, provide the agency with a mandate to carry out its mission in a way that minimizes the costs to the U.S. taxpayer, and assessing the cost-effectiveness of potential litigation is an integral part of this endeavor. See id. 81 Congress, however, did not thereby intend[ ] to authorize the [FDIC] to browse among the private papers of citizens whose only sin had been to serve as officers or directors of defunct S & Ls. Id. at 949. As we reasoned above with regard to the subpoenas of spousal and familial records, the Directors enjoy certain privacy rights in their personal papers that they do not enjoy when acting in their corporate capacities. While an agency may normally exercise its power of inquisition into corporate matters merely on suspicion that the law is being violated, or even just because it wants assurance that it is not, Morton Salt, 338 U.S. at 642-43, 70 S.Ct. at 363-64, it may not browse freely through personal papers solely to ascertain the depth of the pockets of a potential target. 82 Accordingly, before it may subpoena the personal financial information of a potential target for the purpose of determining that individual's net worth, the FDIC must articulate specific grounds for its suspicion of liability. In evaluating the agency's proffered grounds, we will give 'due weight ... to the specific reasonable inferences' that the [FDIC] might draw from the information available to it in light of its experience investigating other failed institutions. Walde, 18 F.3d at 949 (quoting Terry v. Ohio, 392 U.S. 1, 27, 88 S.Ct. 1868, 1883, 20 L.Ed.2d 889 (1968)). 83 The FDIC has clearly met this standard in the grounds for suspicion it articulated in the Glass Declaration. Glass declared that, in examining Landmark's records, he found that the institution had lost more than $9 million on insider loans to certain Landmark directors and their business associates, that the loans had been originated and approved by the directors even after they had been warned by regulators about the soundness of Landmark's operations, and that another director had transferred millions of dollars worth of real estate to family members after Landmark failed. Glass Decl. pp 8-11. These allegations are more than sufficient to support the FDIC's request for information concerning the Directors' net worth. 7