Louis DeNaples v. Office of the Comptroller of Currency

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 11, 2012 Decided January 29, 2013
No. 12-1162
LOUIS A. DENAPLES,
PETITIONER
v.
OFFICE OF THE COMPTROLLER OF THE CURRENCY,
RESPONDENT
Consolidated with 12-1198
On Petitions for Review of the Final Decisions of the Office
of the Comptroller of the Currency and the Board of
Governors of the Federal Reserve System
Howard N. Cayne argued the cause for petitioner. With
him on the briefs were Lisa S. Blatt, Dirk C. Phillips, and R.
Stanton Jones.
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,
Allen H. Denson, Attorney, Richard M. Ashton, Deputy
General Counsel, Board of Governors of the Federal Reserve
System, Katherine H. Wheatley, Associate General Counsel,
and John L. Kuray, Attorney.
2
Before: ROGERS and BROWN, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge BROWN.
BROWN, Circuit Judge: Section 19 of the Federal Deposit
Insurance Act (FDIA) is enforced by several financial
regulators offering varied (and occasionally inconsistent)
interpretations of its scope. The provision restricts who may
participate in the affairs of insured depository institutions and
bank and savings and loan holding companies; specifically, it
bars from participation individuals who have been convicted
of certain criminal offenses or who have “agreed to enter into
a pretrial diversion or similar program in connection with a
prosecution for” the covered offenses, unless they obtain
consent from the appropriate regulatory agency. 12 U.S.C.
§ 1829. Petitioner Louis DeNaples thought he successfully
avoided the consequences of § 19 by convincing a
Pennsylvania district attorney not to prosecute him for
perjury, but he was wrong: he emerged from the state
proceedings to find that the Office of the Comptroller of the
Currency (“OCC”) and the Board of Governors of the Federal
Reserve System (“Board”) had issued cease-and-desist orders
enforcing § 19. DeNaples now challenges the agencies’
authority to issue the cease-and-desist orders, as well as their
respective conclusions that DeNaples’ agreement with the
prosecutor triggered § 19. We grant his petition in part and
remand to the agencies.
I
At the time of the events that generated this case,
DeNaples wielded significant influence over three financial
institutions. He served as chairman and as a director of First
3
National Community Bank (“First National”) in Pennsylvania
and its parent bank holding company First National
Community Bancorp (“Bancorp”). He also owned a large
number of shares in Bancorp and an unrelated bank holding
company in Connecticut, Urban Financial Group, Inc.
(“Urban”). DeNaples does not dispute that these positions
made him an “institution-affiliated party” of First National,
Bancorp, and Urban, as defined by FDIA. See 12 U.S.C.
§ 1813(u).
For a while, DeNaples also owned the Mount Airy
Casino in Pennsylvania. In 2008, however, the local district
attorney charged him with perjury, alleging he had lied to the
Pennsylvania Gaming Control Board about his relationships
with suspected members of the mob when applying for the
casino’s gaming license. The Gaming Board promptly
suspended DeNaples’ gaming license and prohibited him
from controlling and managing the casino. OCC followed
suit, suspending DeNaples from serving as an officer of First
National and prohibiting him from further participation in the
affairs of any depository institution until the charges were
resolved. See 12 U.S.C. § 1818(g).
In April 2009, DeNaples entered an Agreement for
Withdrawal of Charges (“Agreement”) under which the
district attorney would withdraw all pending criminal charges
if DeNaples would divest his financial and operational
interests in the casino, permit the public release of a report
about procedural irregularities in the underlying grand jury
proceeding, pay the costs of prosecution, waive all legal
claims against the state and its agents arising from the perjury
investigation and prosecution, and file written quarterly
reports with the district attorney describing the status of both
his compliance with the Agreement and any proceedings
before the Gaming Board. The Agreement further provided
4
that the district attorney could reinstate the charges if
DeNaples breached its terms in any material way. The district
attorney subsequently withdrew the charges and entered a
disposition of nolle prosequi.
Unfortunately for DeNaples, things did not end there.
Though the district attorney’s office advised OCC that the
Agreement did not constitute a pretrial diversion or similar
program under state law, OCC nevertheless notified DeNaples
that it considered the Agreement to be such a program and
that it triggered § 19. The Board did the same.
DeNaples did not agree with the agencies’ interpretations
of § 19, so he neither resigned his positions with First
National and Bancorp nor divested his shares of Bancorp and
Urban. The agencies accordingly issued Notices of Charges
and ordered hearings to determine whether they should issue
cease-and-desist orders under 12 U.S.C. § 1818(b). The ALJ
assigned to the case issued a consolidated decision rejecting
DeNaples’ arguments that the agencies were not statutorily
authorized to issue the cease-and-desist orders and that the
Agreement did not constitute a § 19 “pretrial diversion or
similar program.” Seeking to avoid the consequences of the
ALJ’s recommendations, DeNaples entered into a
“superseding addendum” to the Agreement with the
Pennsylvania district attorney acknowledging the parties
negotiated and executed the Agreement with the
understanding that “the criminal charges against Mr.
DeNaples would under no circumstances be disposed of in a
manner that would constitute, or that could be construed as
constituting, Mr. DeNaples’ entry into a pretrial diversion or
similar program”; he also successfully sought expunction of
all records of the charges, including the Agreement. But to no
avail. Both OCC and the Board generally adopted the ALJ’s
recommendations and, in the spring of 2012, issued the
5
dreaded cease-and-desist orders, requiring DeNaples to stop
violating § 19 and to terminate his relationships with First
National, Bancorp, and Urban. DeNaples then filed these
petitions for review.
II
DeNaples argues that the agencies’ cease-and-desist
orders exceeded their statutory authority under FDIA § 8(b),
which empowers OCC and the Board to initiate cease-and-
desist proceedings against an institution-affiliated party who
is violating or has violated a law. See 12 U.S.C. § 1818(b).
The provision is hardly a model of clarity, but the parties’
dispute allows us to avoid wandering FDIA’s linguistic
labyrinth: DeNaples challenges only the agencies’ use of their
cease-and-desist powers to remove him from office when
FDIA provides specific removal mechanisms in § 8(e) and
(g). Subsection (e) empowers the agencies to remove
institution-affiliated parties from office or prohibit them from
participating in the affairs of depository institutions if and
only if the appropriate agency can establish misconduct,
culpability, and a statutorily-defined effect.1 Proffitt v. FDIC,
1
In relevant part, subsection (e) (“Removal and prohibition
authority”) reads:
(1) AUTHORITY TO ISSUE ORDER.—Whenever the appropriate
Federal banking agency determines that—
(A) any institution-affiliated party has, directly or
indirectly—
(i) violated—
(I) any law or regulation;
....
(B) by reason of the violation, practice, or breach
described in . . . subparagraph (A)—
6
200 F.3d 855, 862 (D.C. Cir. 2000). Subsection (g),
meanwhile, authorizes removal and prohibition when there is
a conviction or a “pretrial diversion or other similar program”
in connection with certain crimes, but agencies may invoke
this authority only if the individual’s continued participation
in the institution’s affairs threatens public confidence in the
institution or the interests of the depositors. 12 U.S.C.
§ 1818(g)(1).2 DeNaples insists the agencies may remove
(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 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; or
(ii) demonstrates willful or continuing disregard
by such party for the safety or soundness of
such insured depository institution or business
institution,
the appropriate Federal banking agency for the depository
institution may serve upon such party a written notice of the
agency’s intention to remove such party from office or to
prohibit any further participation by such party, in any manner,
in the conduct of the affairs of any insured depository
institution.
12 U.S.C. § 1818(e).
2
In relevant part, subsection (g) (“Suspension, removal, and
prohibition from participation orders in the case of certain criminal
offenses”) reads:
(1) SUSPENSION OR PROHIBITION.—
....
(C) REMOVAL OR PROHIBITION.—
7
institution-affiliated parties from office only through one of
these two mechanisms. We review de novo the agencies’
interpretation of their cease-and-desist authority, see Grant
Thornton, LLP v. Office of the Comptroller of the Currency,
514 F.3d 1328, 1331 (D.C. Cir. 2008), and affirm.
DeNaples swims against the current because he asks us to
restrict what the statute apparently authorizes. DeNaples
concedes he is an “institution-affiliated party” and never
disputes that § 19 is a “law,” so assuming the agencies
properly determined that DeNaples triggered the § 19
prohibition, DeNaples continues to violate it while he
maintains his relationships with First National, Bancorp, and
Urban without the requisite agency consent. We take no
position on whether § 8(b) generally authorizes removal and
prohibition orders, see Kaplan v. U.S. Office of Thrift
(i) IN GENERAL.—If a judgment of conviction or an
agreement to enter a pretrial diversion or other similar
program is entered against an institution-affiliated
party in connection with a crime [either involving
dishonesty or breach of trust, punishable by more
than one year of imprisonment under either state or
federal law, or that violates specified federal statutes],
at such time as such judgment is not subject to further
appellate review, the appropriate Federal banking
agency may, if continued service or participation by
such party posed, poses, or may pose a threat to the
interests of the depositors of, or threatened, threatens,
or may threaten to impair public confidence in, any
relevant depository institution . . ., issue and serve
upon such party an order removing such party from
office or prohibiting such party from further
participation in any manner in the conduct of the
affairs of any depository institution without the prior
written consent of the appropriate agency.
12 U.S.C. § 1818(g).
8
Supervision, 104 F.3d 417, 420 & n.1 (D.C. Cir. 1997), and
indeed, the agencies tell us it does not. But this is a case
where an individual’s relationship with the financial
institution in question is itself the legal violation, a unique
enforcement scenario, and on such facts, an agency cease-
and-desist order is not rendered improper because it entails
the individual’s removal and prohibition.
We are mindful of the obligation both to recognize the
agencies’ “broad authority,” Golden Pac. Bancorp v. Clarke,
837 F.2d 509, 512 (D.C. Cir. 1988), and to preserve the
statute’s “remedial safeguards,” Oberstar v. FDIC, 987 F.2d
494, 502 (8th Cir. 1993). Section 8, after all, balances the
need to protect financial institutions and the economy against
concerns of fairness and the need to protect against the
possibility of abuse. But we are also mindful of the
“fundamental principle that where Congress has entrusted an
administrative agency with the responsibility of selecting the
means of achieving the statutory policy the relation of remedy
to policy is peculiarly a matter for administrative
competence.” Kornman v. SEC, 592 F.3d 173, 186 (D.C. Cir.
2010) (ellipsis and internal quotation marks omitted). And so
it is here. Whatever the arguments against an agency’s general
use of cease-and-desist authority to remove officers, see, e.g.,
S. REP. NO. 94-843, at 6 (May 13, 1976) (explaining that
cease-and-desist action “can be taken to require the cessation
of such practices short of removal of the individual from
participation in the affairs of the institution” (emphasis
added)); Seidman v. Office of Thrift Supervision, 37 F.3d 911,
929, 939 (3d Cir. 1994) (similar), they have less force when
the agency uses the power to enforce § 19. Subsection (e)’s
misconduct, culpability, and effect requirements may have no
analogue in § 19, but § 19 serves the same function as a proxy
for Congress’s judgment that certain predicate facts are
immediately disqualifying; and there is no call to fear
9
unbridled agency action when the agency action does no more
than enact congressional will. Likewise, though a single set of
predicate facts might trigger both subsection (g) and § 19—
suggesting that a cease-and-desist order could be an end-run
around the limits Congress imposed on the agencies’
prohibition authority—the benefits and detriments are pretty
evenly matched: subsection (g) requires only a
postdeprivation hearing, 12 U.S.C. § 1818(g)(3), while
subsection (b) requires predeprivation procedures, id.
§ 1818(b)(1),3 thus enabling the agencies to pick the
enforcement mechanism “best-suited to a given situation in
light of the balance between supervisory exigency and due
process concerns.” Resp’t’s Br. at 46; see FDIC v. Mallen,
486 U.S. 230, 236 n.7, 246 n.12 (1988) (explaining that § 19
suspension or removal “does not moot a § 1818(g)
suspension” because “[i]n certain respects, the § 1818(g)
suspension is broader in scope than the § 1829 suspension,
thus giving . . . the § 1818(g) suspension at least a marginal
effect”).
That there is overlap among the various enforcement
provisions is not surprising. Congress sought to give the
agencies “more effective regulatory powers to deal with crises
in financial institutions.” Mallen, 486 U.S. at 232. In doing so,
Congress could reasonably hand the agencies a palette
sufficiently sophisticated to capture the full spectrum of
3
For this reason, we reject DeNaples’ suggestion that the
agencies’ invocation of subsection (b) implicates due process
concerns because it does not impose the same sort of constraints on
the agencies’ use of the power as do subsections (e) and (g).
DeNaples’ assertion that under Feinberg v. FDIC, 420 F. Supp. 109(D.D.C. 1976), the original version of subsection (g) was
constitutionally defective because it contained no standards to guide
agencies’ discretion is imprecise. See FDIC v. Mallen, 486 U.S.
230, 234 n.4 (1988).
10
enforcement possibility. See RadLAX Gateway Hotel, LLC v.
Amalgamated Bank, 132 S. Ct. 2065, 2072 (2012) (explaining
that the interpretive canon that the specific governs the
general is “not an absolute rule,” only a “strong indication of
statutory meaning that can be overcome by textual indications
that point in the other direction”).
III
The agencies’ statutory authority to enforce § 19
notwithstanding, their cease-and-desist orders are proper only
if DeNaples in fact violated the statute. Predictably, DeNaples
claims he did not. Before reaching the merits, however, we
must address the Board’s claim that its interpretations of
FDIA § 19 are entitled to deference under Chevron, U.S.A.,
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837(1984). They are not. Justifications for deference begin to fall
when an agency interprets a statute administered by multiple
agencies. See Bowen v. Am. Hosp. Ass’n, 476 U.S. 610, 642
n.30 (1986). This Court has accordingly distinguished among
“generic statutes like the APA, FOIA, and FACA,” statutes
like FDIA under which agencies have specialized—but
potentially overlapping—authority, and statutes “where expert
enforcement agencies have mutually exclusive authority over
separate sets of regulated persons.” Collins v. Nat’l Transp.
Safety Bd., 351 F.3d 1246, 1253 (D.C. Cir. 2003). It is only
the last category that unequivocally demands deference.
We have repeatedly pointed to the agencies’ joint
administrative authority under FDIA to justify refusing
deference to their interpretations.4 See, e.g., Grant Thornton,
4
We have not been entirely consistent and unambiguous on
this point. In Stoddard v. Board of Governors of the Federal
Reserve System, 868 F.2d 1308, 1310 (D.C. Cir. 1989), for
11
LLP, 514 F.3d at 1331; Proffit, 200 F.3d at 860, 863 n.7;
Rapaport v. U.S. Dep’t of Treasury, Office of Thrift
Supervision, 59 F.3d 212, 216–17 (D.C. Cir. 1995); Wachtel
v. Office of Thrift Supervision, 982 F.2d 581, 585 (D.C. Cir.
1993). We have never addressed § 19, but we will not change
course now.
Section 19 vests the Board with exclusive authority to
allow persons who would otherwise be excluded to participate
in the affairs of bank and savings and loan holding
companies. See 12 U.S.C. § 1829(d)–(e). But that does not
mean the Board has exclusive enforcement authority over
§ 19 violations. See, e.g., United States v. Carter, 652 F.3d
894, 897 (8th Cir. 2011) (affirming district court’s sentencing
declaration under 12 U.S.C. § 1829 that convicted defendant
“shall not obtain employment in an institution insured by the
FDIC”). As this case illustrates, a single individual may be
subject to enforcement action by multiple agencies, and were
we to defer to the Board’s interpretation here, we “would lay
the groundwork for a regulatory regime in which either the
same statute is interpreted differently by the several agencies
or the one agency that happens to reach the courthouse first is
allowed to fix the meaning of the text for all.” Rapaport, 59
F.3d at 216–17. We have no reason to think Congress
intended such “peculiar corollaries.” Id. at 217.
Accepting the possibility of multiple coexisting
interpretations as the Board urges us to do is particularly
problematic because, as the Board informs us, § 19 violations
example, we summarily invoked Chevron in rejecting the Board’s
interpretation of FDIA § 8(e). Other circuits have taken a similar
approach. See, e.g., Akin v. Office of Thrift Supervision Dep’t of
Treasury, 950 F.2d 1180, 1185 (5th Cir. 1992); Van Dyke v. Bd. of
Governors of Fed. Reserve Sys., 876 F.2d 1377, 1379 (8th Cir.
1989).
12
may trigger criminal penalties. There is therefore a
compelling need for interpretive uniformity. See Collins, 351
F.3d at 1253; cf. United States v. Santos, 553 U.S. 507, 514
(2008) (plurality opinion) (noting “the fundamental principle
that no citizen should be held accountable for a violation of a
statute whose commands are uncertain, or subjected to
punishment that is not clearly prescribed”). No one should
face “multiple and perhaps conflicting interpretations of the
same requirement,” Collins, 351 F.3d at 1253, when
disobedience may result in imprisonment and million-dollar-
a-day penalties. See 12 U.S.C. § 1829(b).
IV
DeNaples argues he did not violate § 19 because he never
entered into a “pretrial diversion or similar program” and
because the record of his prosecution has been expunged. We
agree the agencies need to reevaluate both issues.
A
In determining that the Agreement constituted a “pretrial
diversion or similar program,” both agencies claimed they
considered the “ordinary meaning” of the phrase and
concluded it extends to any diversion from prosecution in
exchange for an agreement to abide by particular conditions.
As OCC put it, the provision is triggered any time an
individual is “diverted from prosecution by agreeing to certain
conditions”—that is, by any “quid pro quo for the
prosecutor’s withdrawal of charges.” The Board, in turn,
offered a tighter definition, concluding the provision turns on
whether the agreement provides for both a “suspension or
eventual dismissal of charges or criminal prosecution” and a
“voluntary agreement by the accused to treatment,
rehabilitation, restitution or other noncriminal or nonpunitive
13
alternatives,” but it ultimately applied an approach much
closer to OCC’s, determining that the Agreement fell within
the statutory ambit because “the District Attorney withdrew
criminal perjury charges against Respondent conditioned on
Respondent agreeing to certain noncriminal alternatives.”
Neither approach works. The agencies properly sought the
ordinary meaning of the statutory phrase, see Taniguchi v.
Kan Pac. Saipan, Ltd., 132 S. Ct. 1997, 2002 (2012), but
despite their efforts, they did not find it.
“[T]here is no one model of pretrial diversion,” John
Clark, PRETRIAL JUSTICE INST., PRETRIAL DIVERSION AND THE
LAW I-1 (2006), but a few conceptual threads loosely bind the
myriad definitions. Generally, the term “pretrial diversion”
refers to (1) a discrete program that (2) seeks some offender-
or community-oriented outcome. The term is thus defined by
functional, not formal, criteria; it is nothing more than a
recognition that not all offenders need be clapped in irons.
See, e.g., United States v. Moore, 486 F.2d 1139, 1193 (D.C.
Cir. 1973); NATIONAL ASSOCIATION OF PRETRIAL SERVICES
AGENCIES, PERFORMANCE STANDARDS AND GOALS FOR
PRETRIAL DIVERSION/INTERVENTION 1–2 (2008) (“NAPSA,
PRETRIAL DIVERSION”). A standard pretrial diversion might
therefore require education, job services and vocational
training, counseling and psychiatric care, community service,
or restitution payments. See, e.g., BLACK’S LAW DICTIONARY
546, 1307 (9th ed. 2009); DEP’T OF JUSTICE, UNITED STATES
ATTORNEYS’ MANUAL: CRIMINAL RESOURCE MANUAL
§ 712(E) (1997); NATIONAL ASSOCIATION OF PRETRIAL
SERVICES AGENCIES, PRETRIAL DIVERSION IN THE 21ST
CENTURY: A NATIONAL SURVEY OF PRETRIAL DIVERSION
PROGRAMS AND PRACTICES 5 (2009). But at the very least,
pretrial diversion is more than just a quid pro quo resulting in
the dismissal of charges. A plea bargain, for instance, would
not be a pretrial diversion, no matter its similarity to pretrial
14
diversion for other purposes, see, e.g., United States v. Harris,
376 F.3d 1282, 1287 (11th Cir. 2004), nor would an
agreement to testify against a codefendant. Indeed, the
prosecutor might have overcharged the defendant in the first
place hoping to leverage a deal. See H. Mitchell Caldwell,
Coercive Plea Bargaining: The Unrecognized Scourge of the
Justice System, 61 CATH. U. L. REV. 63, 65 & n.13 (2011). If a
quid pro quo alone triggered § 19, an individual like
DeNaples who wished to maintain his relationship with a
bank or bank holding company would have to throw the dice
and hope either the prosecutor unilaterally dismisses the
charges or that he prevails at trial.
The statutory expansion of the pretrial diversion concept
through the “or similar program” language does not, as the
agencies suggested at oral argument, disconnect “pretrial
diversion” from the term “program”; it expands the category
to encompass programs that do not necessarily constitute
pretrial diversion. If, for instance, pretrial diversion is
available only in cases with “prosecutorial merit,” see
NAPSA, PRETRIAL DIVERSION, at 3, or where defendants
“acknowledge responsibility for their actions,” Taylor v.
Gregg, 36 F.3d 453, 455 (5th Cir. 1994), the phrase “or
similar program” ensures the provision might nonetheless be
triggered where the prosecutor decides the case cannot be
successfully prosecuted or where the arrangement does not
require the defendant to acknowledge responsibility. Or it
might be triggered by a defendant who does not meet the
formal eligibility criteria of the available pretrial diversion
program, see, e.g., Note, Pretrial Diversion from the Criminal
Process, 83 YALE L.J. 827, 832–34 (1974), or where the
program involves specialty courts like drug courts, which
arguably do not amount to pretrial diversion because they
require the participation of judicial officers. See, e.g., United
States v. Hicks, 693 F.2d 32, 34 (5th Cir. 1982) (“[N]o
15
‘adjudicative element’ is present in the pretrial diversion
context . . . .”); Joseph M. Zlatic et al., Pretrial Diversion:
The Overlooked Pretrial Services Evidence-Based Practice,
FED. PROBATION, Vol. 74, June 2010, at 29 (“Zlatic et al.,
Pretrial Diversion”) (differentiating pretrial diversion from
“seemingly similar programs, such as specialty courts” that
involve a “judicial officer”). But whatever the contours of the
programs that trigger §19, the ultimate effect of the “or
similar program” language is not to turn the statute from a
scalpel into a chainsaw; it simply ensures that competition
among the various definitions of “pretrial diversion” does not
short-circuit the statute.
To be clear, we do not establish a set of necessary or
sufficient criteria for the term “pretrial diversion” or for the
types of programs that are “similar” to pretrial diversion
programs: the concepts are not amenable to that sort of
precision. But the statutory text dictates a set of parameters
the agencies may not exceed. The Board’s definition—
invoking “treatment, rehabilitation, restitution”—
acknowledges these parameters, and the agencies’ counsel
confirmed them at oral argument when he applied the ejusdem
generis canon of interpretation5 to that definition and
conceded that a defendant’s agreement not to sue the state for
malicious prosecution, to be reaffirmed every year for five
years, would not fall within the Board’s catch-all category of
“other noncriminal or nonpunitive alternatives.” We agree
with this approach. Adherence to the parameters dictated by
the text, generally referenced by the Board’s definition, and
confirmed by the agencies’ counsel at oral argument is
5
“A canon of construction holding that when a general word
or phrase follows a list of specifics, the general word or phrase will
be interpreted to include only items of the same class as those
listed.” BLACK’S LAW DICTIONARY 594 (9th ed. 2009).
16
particularly important because § 19 violations may trigger
steep criminal penalties: the nature of that trigger must be
clear. The agencies’ approaches must accordingly be
consistent with the nature of pretrial diversion; clarity
demands no less. We therefore remand for both agencies to
reconsider whether DeNaples’ Agreement constitutes a
“pretrial diversion or similar program.”
We offer the following additional observation to guide
the agencies on remand: the agencies’ claim that state law is
irrelevant to defining “pretrial diversion or similar program”
misses the relationship between federal and state law in this
context. Section 19 ties the “pretrial diversion or similar
program” to “a prosecution for such offense,” namely “any
criminal offense involving dishonesty or a breach of trust or
money laundering.” As the expansive “any” suggests—and as
the agencies’ enforcement actions in this case confirm—the
category of offenses that trigger § 19 includes more than
federal law. See, e.g., Farlow v. Wachovia Bank of N.C., N.A.,
259 F.3d 309, 311 (4th Cir. 2001); see also Scott v. Illinois,
440 U.S. 367, 380 n.10 (1979) (Brennan, J., dissenting).
Whether someone triggers § 19 by agreeing to enter a pretrial
diversion therefore cannot be neatly severed from the
predicate offense, and we expect agencies will heed the
nuances of federalism. To the extent Congress was concerned
with punishment and expected § 19 to do more than just
provide the agencies a vehicle to make technical
determinations of fitness unique to the financial industry, its
expectations are vindicated by the incorporation of state law
into an agency’s § 19 calculus. See, e.g., H.R. REP. NO. 101-
681(I), at 69, 171, 173 (Sept. 5, 1990), reprinted in 1990
U.S.C.C.A.N. 6472, 6473, 6577, 6579; cf. Nat’l State Bank,
Elizabeth, N.J. v. Long, 630 F.2d 981, 988 (3d Cir. 1980)
(explaining about § 8(b) that Congress “was concerned not
only with federal but with state law as well, particularly as it
17
might bear on corruption of bank officials or the financial
stability of the institution,” so a state prohibition might
“directly implicate[] concerns in the banking field”). Of
course, as our discussion of the “or similar program” language
makes clear, a finding that the Agreement does not fall under
any state conception of pretrial diversion would not preclude
application of § 19. Indeed, if, as OCC suggested in a letter to
DeNaples and the ALJ subsequently affirmed, the terms of the
Agreement amounted to a restitution plan, the extension of
§ 19 to the Agreement may very well be proper. But if not, we
expect the agencies’ ultimate decisions to nevertheless
account for the importance of a mechanism for putting
individuals like DeNaples—who negotiated the Agreement
precisely because it would have no § 19 implications—on
notice about what triggers § 19.
The Board recognized the potential relevance of state law
in its decision below, but it also appears to have minimized
the relevance by claiming that state law definitions of
“pretrial diversion” are “not meant to address” the statutory
interest in assessing “the benefits and risks of [individuals’]
continued involvement in banking.” There is a difference,
however, between the Board’s administrative authority to
grant waivers and the events that trigger § 19 in the first
place. Perhaps state law does not track the interests of federal
regulators, but when congressional judgment about what
should trigger § 19 in the first place turns on state law
precisely because of the interests that the state law
presumably seeks to vindicate, the ostensible gap between the
interests of state actors and federal regulators is a non
sequitur.
18
B
DeNaples rests his entire expunction argument on an
FDIC policy statement excluding “completely expunged”
convictions from the scope of § 19. FDIC Statement of Policy
on FDIA Section 19, 63 Fed. Reg. 66,177, 66,180, 66,184
(Dec. 1, 1998) (“FDIC Policy Statement”). An expunction is
complete, FDIC explained, when “the records of conviction
are not accessible by any party, including law enforcement,
even by court order.” Clarification of Statement of Policy for
Section 19 of the Federal Deposit Insurance Act, 76 Fed. Reg.
28,031, 28,032 (May 13, 2011). According to DeNaples,
because no one—including law enforcement, state licensing
authorities, or other governmental officials—is permitted
access to the record of his prosecution, even by court order,
§ 19 does not apply.
In the cease-and-desist proceedings, the agencies rejected
the FDIC policy as irrelevant. OCC punted on the issue,
explaining that the expunction is relevant only to an FDIC
waiver decision and declaring that the Agreement had legal
force under Pennsylvania law for a period before it was
expunged, so DeNaples in fact violated the statute at some
point. The Board, meanwhile, stated that it is not bound by the
FDIC policy, and even if the policy applied, its treatment of
expunged convictions does not govern an expunged
prosecution; this makes sense, the Board reasoned, because
§ 19 addresses the historical fact of an agreement to enter a
pretrial diversion or similar program, which expunction does
not affect.
According to DeNaples, however, OCC and the Board in
fact adopted the FDIC policy, rendering their refusals to
follow that policy arbitrary and capricious. In particular, he
points to (1) a rule implementing the Secure and Fair
19
Enforcement for Mortgage Licensing Act the agencies jointly
adopted, in which they expressly invoked FDIC’s § 19
exemption of expunged convictions as the touchstone for
determining the scope of certain regulated parties’ disclosure
obligations, see Registration of Mortgage Loan Originators,
75 Fed. Reg. 44,656, 44,670 (July 28, 2010); and (2) an
interim final rule the Board issued “to implement section 19
of the FDI Act with respect to [savings and loan holding
companies]” after the Dodd-Frank Wall Street Reform and
Consumer Protection Act gave the Board supervisory
authority over them. Savings and Loan Holding Companies
Rule, 76 Fed. Reg. 56,508, 56,518 (Sept. 13, 2011). In the
interim final rule, the Board explained that § 19 is not
triggered with respect to savings and loan holding companies
by “arrests, pending cases not brought to trial, . . . or
expunged convictions.” Id. at 56,551.6 Though DeNaples does
not point it out, we note also that OCC’s initial § 19
enforcement letter to DeNaples twice invoked the FDIC
policy statement to justify its legal conclusion. OCC further
noted in its decision below an FDIC staff lawyer’s
explanation that the FDIC policy statement does not
distinguish between expunction of convictions and expunction
of a pretrial diversion agreement. (It is not clear whether this
contradicts FDIC’s assertion in the preamble to its policy
statement that exempting expunged convictions “appears to
create an anomalous result when compared with” the pretrial
6
The agencies suggest DeNaples waived these arguments by
not raising them below, see Coburn v. McHugh, 679 F.3d 924, 929
(D.C. Cir. 2012), but the record belies the agencies’ claim:
DeNaples raised the issue, and the agencies’ orders clearly reflect
their respective positions on the matter. The agencies essentially
ask us to find waiver because DeNaples failed to point the agencies
to their own regulations. This we will not do. See Nuclear Energy
Inst. v. EPA, 373 F.3d 1251, 1290–92 (D.C. Cir. 2004); White v.
U.S. Dep’t of the Army, 720 F.2d 209, 211 (D.C. Cir. 1983).
20
diversion language in § 19. See FDIC Policy Statement, 63
Fed. Reg. at 66,180.)
Synthesizing the various agencies’ positions, we are
apparently left with a scheme that, in practice, operates as
follows. First, FDIC takes the position that individuals whose
pretrial diversion agreements have been completely expunged
need not apply for a § 19 waiver because the statute exempts
them. Second, OCC relied on FDIC’s policy statement when
it initiated its enforcement against DeNaples, but it
nevertheless believes that, notwithstanding a subsequent
expunction, the pre-expunction period is sufficient to trigger
§ 19 and, therefore, its waiver scheme—even though the
agency administering that waiver scheme does not recognize
the need for a waiver application. Third, the Board disclaims
the relevance of the FDIC policy statement with respect to
bank holding companies, but it adopted an equivalent
approach with respect to savings and loan holding companies
even though § 19 provides no clear textual basis for treating
the two types of institutions differently. Perhaps, as the Board
now explains, the interim final rule simply preserved the
status quo set by the Office of Thrift Supervision when it
regulated savings and loan holding companies, but that does
not change the consequence of the interim final rule. Fourth,
both OCC and the Board adopted FDIC’s position on
expunged convictions in the course of administering a
different statute. Different statutes, of course, reflect different
policy goals and seek to achieve different real-world results,
so an agency might reasonably take different approaches to
similar issues in different statutes, but the effect in this
context is bizarre.
This is untenable. Discerning the effect of an expunged
conviction under § 19, let alone an expunged pretrial
diversion arrangement, is like trying to draw a two-
21
dimensional shape on the surface of a grapefruit. As we have
explained, the operation of a statute that may result in the type
of severe criminal penalties imposed by § 19 must be clearer.
On remand, we expect the agencies to sort out their respective
positions.
DeNaples’ argument that the agencies acted arbitrarily
turns on the FDIC policy statement both exempting
expunction of pretrial diversion agreements and binding OCC
and the Board on that point. The agencies argue that is not
clearly the case, and we agree. See FDIC Policy Statement, 63
Fed. Reg. at 66,180. However, other explanations by the
regulators have less traction. While distinctions between
convictions and pretrial diversions may be justifiable, the
agencies must acknowledge these differences explicitly—and
consistently—and explain why they make sense or why the
policy statement should govern in some instances but not
others. See County of L.A. v. Shalala, 192 F.3d 1005, 1022
(D.C. Cir. 1999) (“A long line of precedent has established
that an agency action is arbitrary when the agency offer[s]
insufficient reasons for treating similar situations
differently.”). Until now, the agencies have dedicated little
effort to that explanatory enterprise, focusing rather on the
applicability of the policy statement to the Agreement. On
remand, then, we instruct the agencies to offer a rational
explanation for the applicability (or not) of the policy
statement and a rational distinction (if they have one) between
expunction of convictions and expunction of pretrial diversion
programs. Such is the essence of reasoned decision making.
V
Because the agencies applied an improper definition of
“pretrial diversion or similar program” and failed to
adequately justify their positions on DeNaples’ expunction,
22
we grant DeNaples’ petitions for review in part, vacate the
agencies’ orders, and remand for the agencies to determine
whether the Agreement falls within the parameters we now
identify. In its current form, the agencies’ scattergun approach
is too unpredictable. We deny DeNaples’ petitions in all other
respects.
So ordered.