Initial Brief (Washburn v. OCC)

TABLE OF CASES AND AUTHORITIES ^[1]

Federal Appellate Cases

* Alphin v. National Transp. Safety Bd.

839 F.2d 817 (D.C. Cir. 1988).. 20, 21

American Hosp. Ass'n v. Sullivan

938 F.2d 216 (D.C. Cir. 1991).. 34, 35

Anderson v. Heckler

756 F.2d 1011 (4^th Cir. 1985)................ 22

Ardestani v. INS

502 U.S. 129 (1991)...... 35

Association of American Physicians and Surgeons, Inc. v. Clinton

187 F.3d 655 (D.C. Cir. 1999)........ 34

Baily v. Bowen

827 F.2d 368 (8^th Cir. 1987)................. 20

Benavides v. DEA

968 F.2d 1243 (D.C. Cir.1992).. 30

Chevron, USA, Inc. V. Natural Resources Defense Council, Inc.

467 U.S. 837 (1984)...... 26

Cornella v. Schweiker

728 F.2d 978 (8th Cir. 1984)................. 20

Cousin v. OTS

73 F.3d 1242 (2d Cir. 1996)................. 25

De Allende v. Baker

891 F.2d 7 (1^st Cir. 1989). 21

* Engine Mfrs. Ass'n v. EPA

88 F.3d 1075, 1089 (D.C. Cir.1996). 32

Fitzpatrick v. FDIC

765 F.2d 569 (6^th Cir. 1985)................. 31

Frost v. Barnhart

___ F.3d ___ (9th Cir. 2002) [2002 WL 31840622] 21

Gowen v. Bowen

855 F.2d 613 (8^th Cir. 1988)................. 20

* Griffin v. Oceanic Contractors, Inc.

458 U.S. 564, 571 (1982) 32

* Halverson v. Slater

129 F.3d 180 (D.C. Cir. 1997)........ 30

* Hammock v. Bowen

879 F.2d 498 (9th Cir. 1989)................. 21

* Independent Ins. Agents of America, Inc. v. Hawke

211 F.3d 638, 643-44 (D.C. Cir. 2000) 30

Jones v. Heckler

760 F.2d 993 (9th Cir.1985)................. 21

Kuhns v. Board of Governors of the Federal Reserve

930 F.2d 39 (D.C. Cir. 1991) 1, 7, 18, 23

* Lipsig v. National Student Marketing Corp.

663 F.2d 178, 181 (D.C. Cir. 1980)........ 40

Lowe v. FDIC

958 F.2d 1526 (11^th Cir. 1992)........ 31

Pierce v. Underwood

487 U.S. 552 (1988). 18, 19

Qi-Zhuo v. Meissner

70 F.3d 136, 139 (D.C.. Cir. 1995) ....... 30

Ramah Navajo Sch. Bd., Inc. v. Babbitt

87 F.3d 1338 (D.C. Cir. 1996)........ 30

Reiter v. Sonotone Corp.

442 U.S. 330 (1979)....... 27

* Roadway Express, Inc. v. Piper

447 U.S. 752 (1980)....... 26

Scott v. National Transp. Safety Bd.

114 F.2d 305, 306 (D.C. Cir. 1997).......... 1

Shepherd v. American Broadcasting Cos., Inc.

62 F.3d 1469 (D.C. Cir. 1995)........ 34

Sierra Club v. Sec'y of the Army

820 F.2d 513 (1st Cir.1987)................. 21

Sullivan v. Hudson

490 U.S. 877 (1989)....... 35

United Brotherhood of Carpenters and Joiners of America, Local 2848 v. NLR B

891 F.2d 1160 (5^th Cir. 1990)................. 18

United States v. 2,116 Boxes of Boned Beef

726 F.2d 1481 (10^th Cir. 1984), cert. denied, 469 U.S. 825(1984). 19

* United States v. Community Bank & Trust Co.

768 F.2d 311 (10th Cir. 1985)........ 19

* United States v. Yoffe

775 F.2d 447 (1^st Cir. 1985)........... 19, 21

Federal Statutes ^[2]

* 5 U.S.C. § 504(a)(1)... 21

* 5 U.S.C. § 504(c)(2) 1, 18

* 5 U.S.C. §§ 706(2)(A) 25, 34

* 5 U.S.C. §§ 706(2)(C) 25, 34

* 12 U.S.C. § 1813(c)..... 33

* 12 U.S.C. § 1813(q)..... 33

* 12 U.S.C. § 1813(u)..... 33

12 U.S.C. §1818(b)... 27

12 U.S.C. §1818(c)... 27

* 12 U.S.C. §1818(i)(2)........... passim

* 12 U.S.C. § 1818(i)(2)(C)................. 32

* 12 U.S.C. § 1818(s)(1)... 7, 27

* 12 U.S.C. § 1818(s)(3)... 6, 16, 17, 28, 29

28 U.S.C. § 1920........ 26

28 U.S.C. § 1927......... 26

31 U.S.C. § 5313......... 11

31 U.S.C. § 5318......... 27

31 U.S.C. § 5318(a)(1). 32

* 31 U.S.C. § 5321... 16, 17, 26, 29, 31, 32

* 31 U.S.C. § 5321(a) 31, 32

* 31 U.S.C. § 5321(e) 32, 33

31 U.S.C. § 5321(e)(1). 33

42 U.S.C. § 1988......... 26

42 U.S.C. § 2000e-5 (k) 26

Federal Regulations

12 C.F.R. § 19.5(b)(7)... 5

12 C.F.R. § 19.29.......... 4

* 12 C.F.R. § 21.21.. passim

31 C.F.R. Part 103 11, 14, 28

* 31 C.F.R. § 103.22 11, 21

* 31 C.F.R. § 103.56...... 33

* 31 C.F.R. § 103.57...... 31

* 31 C.F.R. § 103.57(d). 31

* 31 C.F.R. § 103.57(h) . 31

Legislative History Materials

* 135 Cong. Rec. S2379 at 2393 (March 8, 1989)

1989 W.L. 171463

[Excerpt of Section 902(a)(13) and (14) in section-by section analysis of FIRREA

amending section 8(i) of FDIA to authorize CMP for “violation of any law or

regulation” and establishing three-tiered CMP penalty structure prepared by

Treasury Department and presented to United States Senate by Sen. Jake Garn]......... 29

* H.R. Conf, Rept. No. 103-652 at 190

1994 U.S.C.C.A.N. 1977 at 2020-21

1994 W.L. 280287

[House Conference description of purpose of Section 406 of the Riegle Community

Development and Regulatory Improvement Act of 1994 regarding purpose of new

paragraph (e) in 31 U.S.C. § 5321 requiring Treasury to delegate power to impose

CMP authority for BSA related violations to federal banking agencies]... 33

* 1994 W.L. 224698

[Testimony of Assistant Secretary of Treasury for Enforcement before the Committee

on Treasury Initiatives of the Senate Committee on Banking, Housing and Urban

Affairs on behalf of the Department of the Treasury regarding S.1664, with portion

pertaining to provisions that were later codified at 31 U.S.C. 5321(e) highlighted.] 33

Miscellaneous Materials

63 Fed. Reg. 30227 ( June 3, 1998)

1994 W.L. 224698

Interagency Policy Statement Regarding the Assessment of Civil Money Penalties

Adopted by the Federal Financial Institutions Examinations Council...... 23

GLOSSARY OF ABBREVIATIONS AND ACRONYMS ^[3]

(Alphabetical)

15-Day Letter Letter [JA 1] from the OCC dated August 22, 2000, advising Washburn that unless he provided a satisfactory reply within 15 days of his receipt of the letter, the OCC intends to institute a CMP Action against him based upon the violations of BSA and the CTR Regulation cited in the ROE 2000.

ALJ Cook Administrative Law Judge Ann Z. Cook, who presided over the CMP Action and EAJA Action.

Amended Answer Supplement and Amended Answer [JA 136] filed by Washburn on July 18, 2001 challenging the authority of the OCC to institute the CMP Action.

Answer Answer to the Notice of Assessment [JA 74] filed by Washburn on April 6, 2001, denying all charges of wrongdoing and requesting a formal hearing.

Application Application for an Award of Attorneys’s Fees and Related Legal Expenses [JA 185] under EAJA filed by Washburn on September 25, 2001.

Bank Peoples National Bank, Seneca, Missouri.

Board Board of Directors of the Bank.

BSA Bank Secrecy Act, 31 U.S.C. §§ 5311-30.^[4]

BSA-based

regulations Regulations adopted by Treasury and the federal banking agencies (OCC, FDIC, FRB, OTS and NCUA) to implement statutory requirement in section 8(s)(1) to further compliance with BSA. Such regulations include 31 C.F.R. Part 103 [Treasury] and 12 C.F.R.§§ 21.21 [OCC], 208.63 [FRB], 326.8 [FDIC], and 748.2 [NCUA]. See 52 Fed. Reg. 2858 (1987) announcing the simultaneous promulgation of the foregoing regulations.

BSA related

violations Violations of a requirement or limitation provided in BSA and in any BSA-based regulation.

CEO Chief Executive Officer.

C&D Order Cease and Desist Order issued pursuant to either section 8(b) or 8(c) of FDIA, 12 U.S.C. §§ 1818(b) and 1818(c).

CMP Civil money penalty imposed pursuant to 12 U.S.C. § 1818(i).

CMP statute Provisions of 12 U.S.C. § 1818(i)(2), as amended by FIRREA.

CMP Action The adverse adjudication action instituted by the OCC against Washburn on February 13, 2001 with the issuance of the Notice of Assessment.

Comptroller Comptroller of the Currency.

CTR Currency Transaction Report - a standardized report the Bank is required to prepare pursuant to 31 U.S.C. § 5313, as implemented by 31 C.F.R. § 103.22, with regard to certain types and sizes currency transactions.

CTR regulation Provisions of 31 C.F.R. § 103.22 promulgated by the Treasury to implement the requirements in 31 U.S.C. § 5313

Durham Debbie Durham, former Head Teller of the Bank.

Durham Affidavit Sworn affidavit [JA 444] executed by Durham on December 3, 2001, and submitted as a supporting documentary exhibit to the Supplementation of the Application^[5] filed by Washburn.

Durham Statement Written statement [JA 8] executed by Durham on September 6, 2000, and submitted to the OCC as a supporting documentary exhibit to Washburn’s reply to the 15-Day Letter.

EAJA Equal Access to Justice Act, as codified at 5 U.S.C. § 504.^[6]

EAJA Action Action instituted by Washburn on September 25, 2001 for an award of certain fees and expenses he incurred in defending the CMP Action.

EIC Examiner-in-Charge of a bank examination, who is responsible for the preparation of a final report of examination that includes findings regarding, inter alia, compliance with all applicable federal laws and regulations.

EIC Allman OCC Examiner Julie Allman, who was the Examiner-in-Charge of the OCC examination of the Bank conducted in June of 2000, and who was primarily responsible for preparation of the ROE 2000.

Exit Review

Meeting Meeting conducted on August 9, 2000 at the Bank between senior OCC examiner and management personnel and the Board to discuss the findings and conclusions of the OCC examination conducted in June 2000.

FDIA Federal Deposit Insurance Act, as codified at 12 U.S.C. §§ 1811 et seq.

FDIC Federal Deposit Insurance Corporation.

Final Order Final Decision and Order [JA 551] issued and entered by the Comptroller on May 2, 2002 that denied and finally disposed of the Application.

FIRREA Financial Institutions Regulatory, Reform, Recovery, and Enforcement Act of 1989 [Section 907 of FIRREA amended the CMP provisions in FDIA and is codified at 12 U.S.C. § 1818(i)(2).]

FRB Board of Governors of the Federal Reserve System.

Holman Joseph Y. Holman, a charter member of the Board who also serves as the Bank’s Legal Counsel, and who provided some of the legal services on behalf of Washburn (with permission from the Board) claimed in the Application.

Holman Affidavit Sworn affidavit [JA 508] executed by Holman on December 4, 2001, and submitted as supporting documentary exhibit to the Supplementation of the Application^[7] filed by Washburn.

Holman Statement Letter [JA 511] dated September 1, 2000 signed by Holman addressed to the Board and attached as a supporting documentary exhibit to Holman Affidavit.

Initial Decision Initial Decision of ALJ Cook [JA 514] issued on February 2, 2002 regarding the merits of the Application.

JA Joint Appendix.

MOU Memorandum of Understanding [JA 424] executed by the Board and the OCC on August 9, 2001.

NCUA National Credit Union Administration.

Notice of

Assessment Notice of Assessment of a Civil Money Penalty [JA 66] issued by the OCC on February 13, 2001, pursuant to 12 U.S.C. § 1818(i)(2)(A)(i) for the assessment of a CMP against Washburn.

Notice of

Dismissal Notice of Dismissal [JA 147] filed by the OCC on August 6, 2001.

Notice of

Settlement Notice of Settlement [JA 143] filed by the OCC on August 6, 2001.

Notice of

Withdrawal Notice of Withdrawal [JA 174] filed by the OCC on August 27, 2001.

OCC Office of the Comptroller of the Currency, a bureau of Treasury.

OCC Answer Answer to the Application [JA 224] filed by the OCC on October 25, 2001.

OCC Reply Reply ^[8] to Washburn Response to OCC Answer to the Application [JA 309] filed by the OCC on December 3, 2001.

Order of Removal Final order [JA 184] issued by ALJ Cook on August 30, 2001, accepting the Notice of Withdrawal as a final OCC order that dismissed the CMP Action.

OTS Office of Thrift Supervision.

ROE Final written Report of Examination that includes the findings, conclusions and comments of OCC examiners regarding, inter alia, the examined bank’s compliance with all applicable federal banking laws and regulations.

ROE 2000 Final OCC Report of Examination of the Bank as of March 31, 2000 based upon the results of an examination conducted by the OCC in June of 2000.

Section 5321 Provisions of 31 U.S.C. § 5321, authorizing Treasury to impose civil money penalties for violations of BSA and its implementing regulations.

Section 8(s)(1) Provisions of 12 U.S.C. § 1818(s)(1), requiring the federal banking agencies to promulgate regulations to further implement compliance with BSA.

Section 8(s)(3) Provisions of 12 U.S.C. § 1818(s)(3), requiring the federal banking agencies to enforce regulations promulgated under section 8(s)(1) by issuing a C&D Order against the regulated institution for any violation of those regulations.

Section 21.21 Provisions of 12 C.F.R. § 21.21 promulgated by the OCC in accordance with the requirement in section 8(s)(1).

Skaggs Frank E. Skaggs, a charter member and Chairman of the Board..

Skaggs Affidavit Sworn affidavit [JA 341] executed by Skaggs on December 4, 2001, and submitted as a supporting documentary exhibit to the Supplementation of the Application^[9] filed by Washburn.

Skaggs Statement Written statement [JA 11] executed by Skaggs on September 6, 2000, and submitted to the OCC as a supporting documentary exhibit to Washburn’s reply the 15-Day Letter.

Treasury Department of the Treasury.

Washburn Dale E. Washburn, former President and Compliance Officer of the Bank.

Washburn Affidavit Sworn affidavit [JA 452] executed by Washburn on December 4, 2001, and submitted as a supporting documentary exhibit to the Supplementation of the Application^[10] filed by Washburn.

Washburn

Response Response ^[11]to OCC Answer to the Application [JA 268] filed by Washburn on November 13, 2001.

Washburn

Statement Written statement [JA 13] executed by Washburn on September 6, 2000, and submitted to the OCC as a supporting documentary exhibit to his reply to the 15-Day Letter from the OCC.

STATEMENT OF APPELLATE JURISDICTION

This is an appeal of a final decision and order (“Final Order”) entered on May 2, 2002 by the Office of the Comptroller of the Currency (“OCC”) that denied an application filed by Appellant, Dale E. Washburn (“Washburn”) under the Equal Access to Justice Act (“EAJA”).

Washburn filed a timely Notice of Appeal on June 3, 2002. This Court has jurisdiction pursuant to 5 U.S.C. § 504(c)(2). Scott v. National Transp. Safety Bd., 114 F.2d 305, 306 (D.C. Cir. 1997), and Kuhns v. Bd. of Governors of Fed. Reserve Sys., 930 F.2d 39, 41 (D.C. Cir. 1991).

APPLICABLE STATUTES AND REGULATIONS

Copies of selected federal statutes, implementing federal regulations, decisions of federal appellate courts, and excerpts of legislative history references are appended to and bound with this Brief as an Addendum in accordance with Circuit Rule 28(a)(5).

STATEMENT OF ISSUES PRESENTED FOR REVIEW

1. Were the charges in the Notice of Assessment issued by the OCC against Washburn substantially justified in fact within the meaning of the Equal Access to Justice Act?

2. Was the institution of an action by the OCC to assess a civil money penalty pursuant to 12 U.S.C. § 1818(i)(2) based upon alleged violations of 12 C.F.R. § 21.21 substantially justified in law within the meaning of the Equal Access to Justice Act?

3. Did the OCC act in bad faith by instituting a civil money penalty action against Washburn for the sole purpose of using the adjudication process as a means to facilitate an illicit plan to impose a financial penalty on Washburn without due process of law?

STATEMENT OF THE CASE ^[12]

I. Institution and Final Disposition of the Underlying CMP Action.

On February 13, 2001, the OCC issued a Notice of Assessment of a Civil Money Penalty (“Notice of Assessment”) against Washburn pursuant to section 8(i)(2) of the Federal Deposit Insurance Act (“FDIA”), 12 U.S.C. § 1818(i)(2) (“CMP statute”). The Notice of Assessment alleged that Washburn “caused, brought about, participated in, counseled, aided, or abetted” an unspecified number of violations of unidentified requirements of 12 C.F.R. § 21.21 (“section 21.21”) that allegedly were committed by the Peoples National Bank, Seneca, Missouri (“Bank”) where Washburn served as President and Compliance Officer. JA 66-73, 67.

On March 6, 2001, Washburn filed an Answer that denied all adverse allegations and requested a hearing. JA 74-81, 82. Administrative Law Judge Ann Z. Cook (“ALJ Cook”) issued pre-hearing orders pertaining to discovery and scheduled the hearing to begin on October 30, 2001. JA 83,120, 121,171. In preparation for that hearing, Washburn conducted extensive discovery over a period of several months (JA 85-109, 110-14, 115-19, 122, 123, 124-28, 129-33, 134, 135) and filed an Amended Answer on July 28, 2001, challenging the authority of the OCC to institute the CMP Action. JA 136-142.

On August 6, 2001, the OCC filed a Notice of Settlement followed by a Notice of Dismissal. JA 143-44, 147-48. Washburn disputed the Notice of Settlement, disavowing a false declaration made therein that the OCC and Washburn had agreed to a settlement (JA 145-46), and responded to the Notice of Dismissal with a Motion for Summary Disposition pursuant to 12 C.F.R. § 19.29, since there was no unresolved issue. JA.149-56. Supplemental pleadings also pointed out that the OCC efforts to abort the CMP Action failed to comply with 12 C.F.R. § 19.5(b)(7) regarding final dismissal action. JA 160-66, 167-70. ALJ Cook later ordered the OCC to either respond to the Motion for Summary Disposition, or file “documentation [showing] the Comptroller has dismissed the proceeding in accordance with § 19.5(b)(7).” JA 172. The OCC chose the latter option and filed a Notice of Withdrawal on August 27, 2001 that summarily withdrew all charges against Washburn. JA 174-75. ALJ Cook accepted the filing as a final dismissal that complied with 12 C.F.R. § 19.5(b)(7) and entered a final order terminating the CMP Action on August 30, 2001. JA 184.

II. Application for Award Under EAJA and Final Disposition of the Application.

A. Application for an Award of Fees and Expenses Under EAJA.

On September 25, 2001, Washburn filed an Application for an Award under EAJA for the fees and expenses incurred defending the CMP Action (“Application”) contending that: (1) the CMP Action constituted an “adversary adjudication;” (2) there was a “final disposition” of that action; (3) Washburn was a “prevailing party” in that action; (4) Washburn had “incurred” legal fees and expenses defending that action; (5) Washburn was “eligible to receive an award” of such fees and expenses; (6) the OCC was not “substantially justified” in instituting the action; and (7) there were no “special circumstances” that made the award claimed “unjust,” as such terms are used in EAJA. JA 185-94. The OCC filed an Answer ( “OCC Answer”) arguing the Application be denied on three grounds: (1) Washburn was not a “prevailing party;” (2) the OCC position was “substantially justified;” and (3) the fees and expenses claimed in the Application were not “incurred” by Washburn. JA 224-42. The remaining four qualifying grounds alleged in the Application were not disputed and are not in issue in this appeal.

The OCC submitted a copy of a “letter of reprimand” addressed to Washburn ( JA 244-45) to support a finding that Washburn was not a “prevailing party,” arguing that he was “neither victorious nor effective” since the CMP Action was not adjudicated on the merits, and that the “letter of reprimand” was issued in lieu of a CMP.^[13] JA 227-28. In support of the contention the agency was “substantially justified” in fact, the OCC submitted copies of written declarations of two examiners who participated in the June 2000 examination of the Bank.^[14] JA 232-33. In support of the argument that Washburn had not “incurred” the expenses claimed in the Application, copies of a severance agreement and the Bank’s Articles of Association were submitted, arguing that since the expenses in question are subject to possible indemnification by the Bank, they were not “incurred” by Washburn within EAJA. JA 233-35, 252-53, 255-64.

On October 26, 2001, ALJ Cook entered an order, sua sponte, permitting Washburn to file a Response to the OCC Answer, and the OCC to file a Reply to the Washburn Response. JA 265.

Washburn filed a Response^[15] to the OCC Answer, pointing out numerous discrepancies and disputing all of the arguments in the OCC Answer (JA 268-307), and the OCC filed a Reply^[16] to the Washburn Response essentially reiterating the arguments advanced in the OCC Answer. JA 309-27. Notably, however, the OCC failed to include any responsive comment or analysis regarding Washburn’s contention the agency’s power under the CMP statute had been tempered by 12 U.S.C. § 1818(s)(3) where the action (as in Washburn’s case) is based solely on violations of a regulation promulgated pursuant to 12 U.S.C. § 1818(s)(1).

On November 26, 2001, ALJ Cook entered an order, sua sponte, permitting Washburn to file supplemental materials similar to those filed with the OCC Answer based upon this Court’s reasoning in Kuhns v. Board of Governors of the Federal Reserve, 930 F.2d 39, 43 (D.C. Cir. 1991). JA 308. On December 6, 2001, Washburn filed a Supplementation to the Application ^[17] (JA 328-38) that included four sets of sworn affidavits with supporting documentary exhibits of the following persons: Bank Chairman Frank E Skaggs, JA 339-441; former Bank head teller Debbie Durham, JA 442-49; Appellant Washburn, JA 450-502; and Bank Director and Counsel Joseph Y. Holman, JA 503-512. The affidavits are highly detailed, factual, first-person accounts, and were admitted to the record on December 13, 2001. JA 513.

B. Initial Decision on Merits of the Application

On February 4, 2002, ALJ Cook issued an Initial Decision (JA 514-22) regarding the merits of the Application, determining that Washburn satisfied all of the eligibility requirements for an EAJA award, and also that Washburn was a “prevailing party” in the CMP Action. JA 516-18. Nevertheless, ALJ Cook concluded the Application must be denied since she also determined the OCC position was “substantially justified” both in fact and in law. The Initial Decision did not address the issue of whether Washburn “incurred” the expenses claimed in the Application.

Following an unopposed petition by Washburn, the OCC granted the parties permission to file exceptions to the Initial Decision. JA 523-25, 526. Washburn filed exceptions disputing the determination the OCC was “substantially justified” (JA 527-37), and the OCC filed exceptions disputing the finding Washburn was a “prevailing party” and reserving the issue of whether Washburn “incurred” the expenses claimed in the Application. JA 541-50.

C. Final Agency Action on the Application

On May 2, 2002, the Comptroller entered a Decision and Order (“Final Order”) that denied the Application. JA 551-52. The Final Order adopted in toto the determination and analysis in the Initial Decision that the OCC was substantially justified both in fact and in law to institute the CMP Action. The Comptroller, however, declined to either adopt or reject the finding of ALJ Cook that Washburn was a “prevailing party” in that action, reasoning that review of that issue was unnecessary because of the dispositive effect of the determination the OCC was “substantially justified” within EAJA. The Final Order did not address the issue of whether Washburn “incurred” the expenses claimed in the Application.

STATEMENT OF FACTS ^[18]

I. Brief History of the Bank, the Flawed Structure of Executive Management of the Bank, and the Unfortunate Adverse Consequences of that Management Structure.

The Bank opened for business on March 15, 1996 in the small rural community of Seneca, Missouri. Washburn was instrumental in the Bank’s organization and served as a charter member of the Bank’s Board of Directors (“Board”) and as the Bank’s President and Compliance Officer from March 1996 until September 2000. In granting the Bank’s charter, the OCC expressed strong reservations regarding the managerial experience of Washburn and Kenny Davis (“Davis”) who was also instrumental in organizing the Bank with Washburn. As a result, the Bank operated without a chief executive officer (“CEO”) from September 1996 ^[19] to September 2000. Because of the OCC’s strong opposition to either Washburn or Davis serving as CEO, the Board adopted a management structure that placed Washburn and Davis on the same plane of executive authority and responsibility. The Bank essentially operated for four years with Washburn and Davis acting as de facto co-chief executive officers. JA 341-42, 449n.1, 452-53, 457n.1-3.

Such an arrangement had the unfortunate consequence of polarizing the loyalties and support of all of the Bank’s other eight employees, all of whom worked under the direct supervision of both Washburn and Davis, depending upon their duties. Washburn and Davis were effectively competing for the same position on a winner-take-all basis. As a result of a natural human response to that competition and the daily supervisory interaction of Washburn and Davis with all of the Bank’s employees, the entire operational staff was gradually split into separate, rival factions. That circumstance deteriorated and fostered employee resentments over favoritism and caused periodic open conflict among the Bank’s employees, which in turn, eventually precipitated the resignation of the Bank’s head teller, Debbie Durham. The situation reached a critical low point in June 2000 with an open and defiant display of insubordination to Washburn by Assistant Compliance Officer Lori Hirsch, who had placed her loyalty and support with Davis.^[20] By early summer of 2000, therefore, Bank employee morale was extremely poor and had a adverse impact upon the efficiency of their overall performance. JA 341-42 446-47, 449n.1, 454-55, 457 n.6-7.

In order to fill the CEO void and at the request of the OCC, the Board retained the services of an outside management-consulting firm that provided active, on-site managerial assistance to the Board from September 1996 thru December 1999. Notwithstanding strong objections by the OCC, the Board terminated the services of the firm, effective year-end 1999, and continued the equal executive authority status of Washburn and Davis until Washburn left the Bank in September 2000. At that time, Davis was given the title of President with full CEO authority. Shortly thereafter, Davis promoted Assistant Compliance Officer Lori Hirsch to Compliance Officer. In October 2000, Washburn was employed by a much larger state-chartered bank where he serves today as Vice President, Branch Manager and Senior Commercial Loan Officer of the Community Bank and Trust Company in Joplin, Missouri. JA 342, 345n.1, 452-53, 457n.4.

II. Bank Efforts to Develop, Adopt, and Implement Policies and Procedures Designed to Assure the Compliance with BSA and its Implementing Regulations.

The management-consulting firm provided substantial assistance in the development of operating policies and procedures, including those designed to facilitate compliance with the Bank Secrecy Act (“BSA”). Special emphasis was placed on procedures pertaining to the preparation of a Currency Transaction Report (“CTR”) for currency transactions, as required by 31 U.S.C. § 5313, which is implemented by 31 C.F.R. § 103.22 (“CTR regulation”). Between January 1997 and June 2000, the Board also retained the services of two highly respected certified public accounting firms to conduct quarterly compliance reviews and audit testing of the Bank’s procedures to comply with BSA and all implementing regulations adopted by the Secretary of the Treasury (“Treasury”) in 31 C.F.R. Part 103, and by the OCC in section 21.21 pertaining to compliance with BSA (collectively, “BSA-based regulations”). JA 14, 16-38, 342-43, 345n.2-4, 348-410,455.

During this same period, and with the assistance of the management-consulting and outside auditing firms, Washburn developed procedures specifically designed to facilitate compliance with the CTR regulation and also implement an internal control axiom of avoiding a concentration of control of an internal banking process with any one or two persons. The CTR procedures Washburn developed involved four different Bank employees, including him. Washburn also engaged the employees involved with the CTR process with regularly scheduled training programs. The procedures developed by Washburn and his efforts to provide training for those involved with it were well documented, and were known by the Board, the management-consulting and outside auditing firms, as well as OCC examiners. JA 4-5, 8-9, 13-14, 40-48, 445-47, 449n.2, 453-54, 457n.5, 462. Although the Bank had engaged in an extended, systematic program in concert with qualified outside professionals with the specific intent of facilitating compliance with BSA and BSA-based regulations (JA 16-38, 343-410), criticisms regarding compliance with BSA and Washburn’s performance as BSA compliance officer were made in examinations conducted between 1997 and 1999.^[21] Since some of the criticisms in the 1999 examination were similar to those made in earlier examinations, the Board made a special effort to include provisions in engagement letters with the Bank’s outside accounting firm in August 1999 and January 2000 for the conduct of a special review of the Bank’s BSA procedures, evaluating their effectiveness, and making recommendations for any improvements. JA 342-43, 345n.2-4, 368-84.

On April 21, 2000, the outside auditing firm issued a written report indicating the Bank’s BSA compliance policies and procedures satisfied all applicable requirements in BSA and BSA-based regulations. As of the end of April 2000, therefore, the Board was confident it was executing its responsibilities with regard to BSA in competent manner. JA 342-43, 346n.5, 385-403, 455.

III. The OCC Examination of the Bank in June of 2000 and the Its Aftermath.

Earlier that same month (April 2000), the OCC advised the Bank that it planned to start an examination in early June, and asked that certain actions be taken to facilitate the conduct of that examination. As part of that effort, Washburn instructed Assistant Compliance Officer Hirsch to check and make certain that all records required by the CTR regulation since the last OCC examination were properly filed and accounted for in the same manner that she had done in preparing for previous OCC examinations. Unfortunately, Washburn’s request was never honored. JA 447, 449n.2, 454, 457n.6-7, 464-68.

Early in the June 2000 OCC examination, examiners discovered several violations of the CTR regulation. Washburn (not OCC examiners) immediately began an intensive investigation with head teller Durham (in the wake of Ms. Hirsch’s refusal) to determine the nature and scope of the problem, and prepared a report several days later showing that sixty-five (65) violations of the CTR regulation had occurred. Washburn determined that the vast majority of the violations were caused by a change in the methodology used by an outside vendor to prepare computer-generated reports of all banking activities for the previous day, and the vendor’s failure to inform anyone at the Bank of such change for several weeks. The reports constituted a critical part of the CTR reporting procedure Washburn had developed. All of the violations were corrected during the examination, and none involved suspected money-laundering activity. All of the violations involved routine deposits of four local small business customers, all but one of which were later exempted from the CTR requirement. JA 4-5, 8, 13-14,446-47, 455, 457n.7.

On August 9, 2000, the Board met with OCC examiners and senior management officials to review the results of the June examination (“Exit Review Meeting”). The OCC made a special Power-Point slide presentation emphasizing the requirements of BSA and the CTR regulation and asked the Board to execute a Memorandum of Understanding (“MOU”) that contained a comprehensive corrective action program designed to improve the Bank’s compliance with BSA and its implementing regulations. The Board agreed and executed the MOU. Section 21.21 was never mentioned during that meeting. JA 343-44, 346n.6-7, 412-22, 424-34, 455.

On August 22, 2000, the OCC addressed a letter to Washburn advising the agency intended to institute a CMP Action against him based upon his alleged liability for causing the CTR violations discovered at the June examination, unless he provided a satisfactory written response within 15 days. (“15-Day Letter”). In formulating such response, the OCC specifically asked Washburn to complete and execute a financial statement enclosed with the 15-Day Letter. JA 1-2.

Washburn, with assistance from Bank Counsel Joseph Y. Holman, answered the 15-Day Letter on September 7, 2000, arguing against any action and forwarding several affidavits and numerous supporting documentary exhibits, including the quarterly reports from the Bank’s outside auditing firm discussed above. Washburn also complied with the OCC request and included an executed financial statement showing his and his wife’s net worth and sources of income. JA 3-59.

The OCC responded by letter dated November 13, 2000, and informed Washburn (without any comment regarding his response to the 15-Day Letter) the OCC had decided to institute a CMP Action against him, unless he consented to pay a CMP enclosed with the letter. The OCC stated its decision was based on Washburn’s failure “to promptly correct and prevent recurring violations of the Bank Secrecy Act ... and its implementing regulation [sic], 31 C.F.R. Part 103.” JA 60.

After negotiations over the ensuing three months failed to convince Washburn to sign a consent agreement pay a CMP order, the OCC issued formal charges that instituted the CMP Action against Washburn on February 13, 2001.^[22] After renewed negotiations with the OCC in July of 2001 resulted in the same refusal of Washburn to agree to the issuance of a consent order, the OCC summarily dismissed the CMP Action. JA 172, 174.

SUMMARY OF ARGUMENT

It is tempting to say this case is about excessive zeal, overreaching, or letting the end justify the means. But such labels miss the mark. This case is simply about justice and due process of law.

Blinded by the discovery of a large number of reporting violations of the CTR regulation in June 2000, the OCC became obsessed with holding Washburn personally responsible and punishing him accordingly. After written threats failed to convince Washburn to pay a penalty order issued by consent, the OCC issued formal charges to impose a CMP by force. The OCC charges , however, did not accuse Washburn of causing the CTR violations, but with aiding or abetting an unspecified number of violations of unidentified requirements of section 21.21 allegedly committed by the Bank.

The OCC charges were framed in peculiar and often vague terminology that made them seem unusually strained. More importantly, OCC examiners had never mentioned violations of section 21.21 by the Bank in any meeting or discussion during the June 2000 examination, including the Exit Review Meeting with the Board; nor were such violations mentioned in the final written OCC Report of Examination showing the results of that examination (“ROE 2000”). Even more puzzling was the later discovery that the Examiner-in-Charge (“EIC”) of the June 2000 examination who had prepared the final ROE 2000 was one of the examiners who signed a written declaration opining that Washburn caused or aided the Bank’s violations of section 21.21. The plain fact of the matter is that the OCC charges against Washburn were contrived and therefore bogus from the beginning.

The record in the underlying action confirms that conclusion. It shows beyond any doubt that the OCC never had any factual basis for the charges it issued. The opposite determination in the Final Order is erroneous on several counts. First, the finding was not predicated upon a review of all evidence in the record, but was based solely on the evidence offered by the OCC. The Comptroller erroneously disregarded all of the rebuttal evidence offered by Washburn. Second, the determination was not predicated upon a preponderance of evidence in the record. The only material evidence considered by the Comptroller was an abbreviated (two-page) written declaration of a bank examiner that contained, at best, a qualified opinion based upon an assumption, and an even shorter declaration from another examiner agreeing with the other examiner’s qualified opinion. Such evidence, standing alone, cannot possibly satisfy the requisite showing of a preponderance of evidence to support the finding in question . Third, there is no evidence in the record that supports any of the four pivotal factual elements in the charges.

The determination in the Final Order the CMP Action was substantially justified in law based upon the “plain meaning” of the phrase “any law or regulation” in the CMP statute is also wrong. The Comptroller totally ignored the richly detailed legislative history of BSA that shows an unambiguous Congressional intent to establish an enforcement scheme regarding compliance with BSA and BSA-based regulations that flatly contradicts the Comptroller’s determination. The Comptroller dismissed, without comment or analysis, all of the arguments summarized below.

It is undisputed the OCC did not have the authority to impose a CMP for violations of BSA or its implementing regulations prior to the 1989. There are four separate arguments that show why the amendment that added “any law or regulation” to the CMP statute in 1989 cannot be construed as overlapping the pre-existing CMP authority of Treasury under 31 U.S.C. § 5321 (“section 5321”) to impose a CMP for a violation of the BSA or its implementing regulations, including section 21.21.

First, the legislative record of the 1989 amendment expressly states that the amended CMP statute was not intended to overlap the specific CMP authority of Treasury under section 5321. Second, section 8(s)(3) of FDIA, 12 U.S.C. § 1818(s)(3) (“section 8(s)(3)”), has not been repealed. That statute requires the OCC to issue a cease and desist order against any national bank that violates section 21.21. If the amended CMP statute is interpreted as overlapping the CMP authority of Treasury under section 5321, the provisions of section 8(s)(3) will be rendered meaningless. Third, there are irreconcilable disparities regarding vastly divergent standards of proof and authorized penalty amounts between the amended CMP statute and section 5321that would apply to the same violation, making it impossible to rationalize a construction of the former statute as overlapping the latter. Last, the amendment to section 5321 enacted by Congress in 1994 confirms on its face that the OCC did not have authority in 2001 to impose a CMP for a violation of section 21.21 in the absence of a delegation of authority from Treasury. The 1994 amendment added paragraph (e) to section 5321 and requires Treasury to delegate its authority to impose a CMP for BSA related violations to the OCC; however, Treasury has never made a delegation under that statute. The foregoing arguments are corroborated by a rather compelling statistic. Since the CMP statute was amended more than thirteen years ago in 1989, and except for the charges issued against Washburn in 2001, the OCC has apparently never issued CMP charges against an officer of a national bank for violations of BSA or any BSA-based regulation, including section 21.21.

Finally, and most disturbing, the record contains clear and convincing evidence the OCC instituted the CMP Action in bad faith. At the time the OCC issued formal charges, and even though the papers served on Washburn advised he was entitled to a hearing as a matter of right, the OCC was only pretending. From the outset, the OCC never intended the merits of the charges to be adjudicated at a hearing. The sole purpose of instituting the CMP action was to manipulate the enforcement notification process so that the process itself could be used as a weapon to coerce Washburn to pay a consent order, or (failing that) to impose a financial penalty on Washburn in the form of the legal fees and expenses he would incur in preparing for a hearing the agency knew would never occur. In short, the OCC engaged in a wanton, vexatious exercise designed to punish Washburn without regard to the basic precepts of fairness and due process of law.

ARGUMENT

I. Introductory Caveat.

Since the Final Order under review adopted in toto the analysis and conclusions in the Initial Decision that the OCC action against Washburn was “substantially justified” within EAJA, this Brief will cite that portion of the Initial Decision as though it were written into the Final Order.

II. The Charges in the Notice of Assessment Were Not Substantially Justified in Fact.

A. Standard of Review.

The standard of review of the determination that the OCC was substantially justified in fact to issue the charges in Notice of Assessment is whether there is substantial evidence in the record to support the factual basis of such charges. 5 U.S.C. § 504(c)(2). Kuhns v Board of Governors of the Federal Reserve, 930 F.2d 39, 41 (D.C. Cir. 1991) (“Our review of the Board's decision [denying an EAJA application] is limited to determining whether there is substantial evidence to support it.”) The abuse of discretion standard applied in Pierce v. Underwood, 487 U.S. 552, 559-63 (1988) is not applicable where the initial judicial review is conducted under 5 U.S.C. § 504(c).^[23]

B. The Comptroller Failed to Satisfy the Essential Elements to Support a Finding the Charges in the Notice of Assessment Were Substantially Justified in Fact.

The seminal decision of the Supreme Court in Pierce, supra, at 565-66 held the word “substantially” in EAJA means the agency’s position in the underlying proceeding was:

... justified in the main - that is, justified to a degree that could satisfy a reasonable person. That is no different from the ‘reasonable basis both in fact and in law’ formulation adopted by the Ninth Circuit and vast majority of other Courts of Appeals that have addressed this issue.” [citations omitted and emphasis added]

The Pierce opinion cited a list of decisions issued by the Courts of Appeals in all circuits (except those in the Eighth, Federal, and D.C. Circuits)^[24] that had interpreted “substantially justified” as “a reasonable basis both in fact and in law.” A fair reading of those opinions and their progeny have applied the “reasonable basis both in fact and in law” standard by requiring the agency to bear the burden of demonstrating three distinct components: (a) a preponderance of factual evidence in the record that would persuade a reasonable person to conclude the factual aspects of the charges in question are true; (b) the legal authorities and precedents relied upon would persuade a reasonable person to conclude the agency’s legal theory of liability is supported in law; and (c) the factual allegations made by the agency support the agency’s theory. United States v. Community Bank & Trust Co., 768 F.2d 311, 314 (10th Cir. 1985). (“The [agency] must therefore show that it had a reasonable basis for the facts alleged; that it had a reasonable basis in law for the theory advanced; and that the facts supported its theory,” citing United States v. 2,116 Boxes of Boned Beef, 726 F.2d 1481, 1487 (10^th Cir. 1984), cert. denied, 469 U.S. 825(1984)); and United States v. Yoffe, 775 F.2d 447, 450 (1^st Cir. 1985) (“We ... hold that the government has the burden of proving that its position was substantially justified by a preponderance of the evidence.”)

The first component (i.e., a determination the preponderance of evidence in the record would persuade a reasonable person to conclude the factual aspects of the charges are true) is itself comprised of three essential elements: (1) the determination must be based upon all evidence in the record, not just the evidence offered by the agency; (2) the determination must be supported by a preponderance of evidence in the record; and (3) the determination must show that the pivotal factual aspects of the charges are supported by substantial evidence. The Comptroller’s finding that the OCC charges against Washburn were substantially justified in fact failed to satisfy all three requirements. The reasoning of this Court in Alphin v. National Transp. Safety Bd., 839 F.2d 817, 821 (D.C. Cir. 1988) is an instructive starting point:

These passages [in the record]^[25] and the Board's treatment of the evidence indicate that the Board failed to view the “record as a whole” when it determined that the [agency] was substantially justified [within EAJA]. The Board concluded that because [the agency] had presented enough evidence to establish a violation, it was substantially justified in initiating and continuing the proceedings against Alphin. This is not the standard required by the EAJA, however. The Act expressly requires an examination into “the administrative record, as a whole.” Any lesser examination- -such as viewing the government's case in a vacuum, “excluding consideration of a respondent's rebuttal case,” would defeat the purposes of the EAJA. [emphasis added]

Accord Gowen v. Bowen, 855 F.2d 613, 616 (8^th Cir. 1988) (“We find the [agency] has disregarded the overwhelming evidence in the record ...”); Baily v. Bowen, 827 F.2d 368, 371 (8^th Cir. 1987) (“[T]he mere existence of some [supporting] evidence is insufficient to render the [agency’s] position substantially justified.”); and Cornella v. Schweiker, 728 F.2d 978, 984 (8th Cir. 1984) (“We do not believe the government's position can be deemed reasonable in fact when it relied on an isolated part of the evidence and ignored the other overwhelming evidence of disability.”)

1. The finding was not based upon review and consideration of all of the evidence in the record, viewed as a whole.

The Final Order states explicitly the finding of substantial justification in fact was predicated solely upon the evidence offered by the OCC, and that all of the rebuttal evidence offered by Washburn was disregarded since it only constituted evidence of a “persuasive defense” that Washburn might have presented at the hearing: (at JA 521)

An OCC examination disclosed that the Bank had failed to file many large currency transaction reports in violation of [31 C.F.R. § 103.22]. The signed declaration of one of the bank examiners conducting the [June 2000] examination .... stated that the reporting failures might have been averted had the Bank complied with § 21.21. A signed declaration of the examiner-in-charge confirmed the examiner’s conclusions...

Washburn [argues] this information insufficient to constitute a reasonable factual basis for the charges [issued against him, and that the evidence he offered should be considered in making that determination].

Washburn misconstrues the showing required. Reasonable basis in fact is the applicable standard, and is judged at the time the [OCC charges were] issued. The information offered by OCC provides a reasonable factual basis for issuance of the [charges against Washburn]. Examiners are to be given “significant deference” and their opinions carry substantial weight. The fact that Washburn might have presented a persuasive defense does not retroactively affect the reasonableness of the OCC’s decision [to issue the charges in question]. [citations omitted and emphasis added]

Section 504(a)(1) of EAJA expressly requires the determination of substantial justification to be based upon the evidence in “the administrative record, as a whole.” The decision to base a finding of substantial justification in fact solely upon the evidence offered by the OCC is tantamount to “viewing the government’s case in a vacuum” rejected by this Court in Alphrin, supra, at 821. See also Hammock v. Bowen, 879 F.2d 498, 501 (9th Cir. 1989) (“[A] reviewing court must review the record as a whole and consider adverse as well as supporting evidence. We ‘may not affirm simply by isolating a specific quantum of supporting evidence,’ Jones v. Heckler, 760 F.2d 993, 995 (9th Cir.1985).”) Accord Frost v. Barnhart, ___ F.3d ___ (9th Cir. 2002) [2002 WL 31840622].

2. The finding is not supported by a preponderance of evidence in the record.

The second element of substantial justification in fact pertains to the burden of proof of the agency to demonstrate substantial justification by a preponderance of the evidence and is well established. De Allende v. Baker, 891 F.2d 7, 12 (1^st Cir. 1989); Sierra Club v. Sec'y of the Army, 820 F.2d 513, 517 (1st Cir.1987); and United States v. Yoffe, 775 F.2d 447, 450 (1st Cir. 1985). The only evidence offered by the OCC and relied upon by the Comptroller to support the finding the OCC was substantially justified in fact were two abbreviated declarations by OCC examiners who participated in the June 2000 examination. JA 247-50, 521. The declaration of EIC Julie Allman (JA 249-50) merely ratified that of OCC examiner Karen Porter (JA 247-48) (“Porter declaration”). Accordingly, the only evidence the Comptroller actually relied upon was the Porter declaration. By any standard, such evidence standing alone cannot satisfy the requisite standard of proof.

The overwhelming preponderance of evidence in the record actually points in the opposite direction of the finding in the Final Order, and shows the OCC did not have a reasonable (or any) basis in fact to make the charges issued against Washburn. The most compelling evidence in that regard is the “Violations of Laws and Regulations” section of the ROE 2000. JA 436-41. EIC Allman, who was primarily responsible for the preparation of the final ROE 2000, reviewed all of the information contained in that report for accuracy and completeness; however, the cited excerpt does not show any violation of section 21.21 by the Bank, as alleged in the Notice of Assessment.^[26] See Anderson v. Heckler, 756 F.2d 1011,1013 (4^th Cir. 1985) (“We reject the standard [of] some evidence to support the [agency’s] position ... An unexplained, unsupported [statement] in a report neither constitutes substantial evidence nor arguably constitutes substantial evidence when all of the ... other evidence points in the opposite direction.”)

3. The finding is not supported by any evidence in the record that support the pivotal factual elements of the charges in the Notice of Assessment.

The comprehensive analysis and review of all of the evidence in the record made by this Court in Kuhns, supra, at 43-44, regarding each charge made by the agency to determine the issue of substantial justification in fact was never made in this case by the Comptroller. The OCC charges against Washburn contain four pivotal factual elements that require proof: (1) the Bank did or failed to something ; (2) that something had a direct or indirect causal effect that resulted in a violation of one (or more) of the requirements in section 21.21; (3) Washburn did or failed to do something, and (4) that something had a direct or indirect effect that “caused, brought about ... aided or abetted. the Bank’s violations of section 21.21.”

With regard to the first and second elements, the record is totally devoid of any evidence showing that the Bank did (or failed to do) anything that resulted in any violation of section 21.21. The record does not contain a shred of evidence showing: (a) what specific requirement(s) in section 21.21 was (were) violated by the Bank, (b) what action (or inaction) by the Bank resulted in or caused such violations, (c) how many times the violations were committed by the Bank, (d) when such violations occurred, (e) when the Bank was first notified of the violations, or (f) how long the violations remained uncorrected after such notification.^[27]

With regard to the third and fourth elements, the linchpin issues are what did Washburn do (or not do) and how did that action (or inaction) cause, aid, or abet the Bank to violate which requirement(s) in section 21.21? The Porter declaration does not even try to answer those questions.^[28] The examiner begins her analysis with the naked assumption the CTR violations were caused by a failure of Washburn to perform his duties properly:

This failure [of Washburn to perform his duties properly] is evidenced by the fact that the Bank failed to file currency transaction reports on sixty-five reportable large currency transactions. JA 248.

Armed with that determination, it is puzzling why Ms. Porter’s conclusion is only tentative:

Had Mr. Washburn [performed his duties properly], the Bank may not have failed to report sixty-five large cash transactions. [emphasis added] JA 248.

Even more puzzling, however, is how the examiner’s tentative conclusion based upon an assumption is interpolated and magically transformed in the Final Order as an expert opinion regarding a violation section 21.21 committed by the Bank:

She [examiner Porter] stated that the reporting [violations] might have been averted had the Bank complied with § 21.21.^[29] A signed declaration of the examiner-in-charge confirmed the examiner’s conclusions. [emphasis added] JA 521.

By any rational standard of logical thought, it is impossible to justify the characterization of the referenced conclusion of Ms. Porter stated in the Final Order.^[30] Even assuming ad arguendo the validity of such characterization, it is, at best, only a tentative opinion based upon an erroneous assumption of fact. Further, the Comptroller’s finding of substantial justification is unquestionably predicated upon the added assumption (and erroneous conclusion of law) that Washburn’s alleged failure to perform his duties properly in accordance with the Bank’s adopted BSA policies and procedures, as described in the Porter declaration, is the equivalent of a violation of law by the Bank pertaining to some unidentified requirement in section 21.21, thus establishing the needed causal relationship between Washburn’s conduct and the Bank’s violations of section 21.21 alleged in the Notice of Assessment. Such reasoning is patently defective.

III. The Institution of a Civil Money Penalty Action Based Upon the Charges in the Notice of Assessment Was Not Substantially Justified in the Law.

A. Standard of Review.

Issues of law are subject to de novo review. Cousin v. OTS, 73 F.3d 1242,1249 (2d Cir. 1996) (“We review the [agency’s] legal interpretations de novo.”) An agency interpretation of a statute can be set aside by this Court under the Administrative Procedure Act (“APA”) if the interpretation is found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law;” or that the interpretation is “in excess of statutory jurisdiction or authority.” 5 U.S.C. §§ 706(2)(A) and (C). Since the issue of whether CMP Action instituted by the OCC was “substantially justified in law” is a pure question of law, this Court’s review is de novo to determine whether the Comptroller’s determination answering such question in the affirmative is sustainable under the standards in APA §§ 706(2)(A) and (C).

B. The OCC Did Not Have Legal Authority to Institute a Civil Money Penalty Action Based Upon the Charges in the Notice of Assessment.

The determination of substantial justification in law in the Final Order is grounded on the finding that the agency’s “reliance on the plain meaning of its statutory authority [in 12 U.S.C. §1818(i)(2)] was reasonable.” JA 520. Reliance on a “plain meaning” standard, while always the preferred starting point, is not sustainable where such construction: (1) is contradicted by a statutory scheme designed and established by Congress that reflects an “unambiguous” legislative intent, (2) has the effect of rendering other existing statutes meaningless surplusage, or (3) produces bizarre results and discrepancies that are clearly at odds with results intended by Congress. In the present case, the “plain meaning” construction of the CMP statute succumbs to all three exceptions.

As demonstrated in the section that follows this paragraph, Congress has established an unmistakable statutory scheme showing exactly how it intended BSA and its implementing regulations will be enforced using the CMP enforcement sanction. If this Court agrees that such scheme is unambiguously manifest in the legislative record, the Comptroller’s plain meaning construction cannot be sustained. Chevron, USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984). See also Roadway Express, Inc. v. Piper, 447 U.S. 752, 758 (1980) (“This superficially appealing argument cannot survive careful consideration.”).^[31] [The remaining two exceptions to the “plain meaning” construction are addressed, infra, at 30-32.]

1. Congress has established a clear enforcement scheme regarding the assessment of civil money penalties for BSA related violations of law.

The first Congressional grant of authority to impose a CMP for BSA violations was made with the enactment of the Bank Secrecy Act of 1982. Under that law, CMP authority for BSA related violations was vested exclusively with Treasury, as provided in 31 U.S.C. §5321. Although Congress granted Treasury the authority to delegate the power to impose a CMP for BSA related violations to the OCC (31 U.S.C. § 5318), Treasury has never exercised that authority.^[32]

Congress expanded the enforcement scheme of BSA four years later with the enactment of the Money Laundering Control Act of 1986. That law added a new section 8(s)(1) to FDIA, 12 U.S.C. § 1818(s)(1) (“section 8(s)(1)”), requiring the OCC to promulgate regulations to further implement BSA compliance. Section 21.21 was adopted to comply with section 8(s)(1). In the same 1986 legislation, Congress, for the first time, enacted a specific grant of BSA enforcement authority to the OCC. The scope of that new authority, however, was explicitly circumscribed by Congress, as provided in section 8(s)(3). That statute provides for the mandatory imposition of a specific type of sanction by the OCC for a violations of section 21.21: “[The OCC] shall issue an order [under sections 8(b) or 8(c) of FDIA] requiring [the sanctioned entity] to cease and desist [violating section 21.21].”(“C&D Order”)^[33] Further, the statute specifically identifies the recipient of the mandated C&D Order by requiring its imposition on the institution, not its officers or directors. Congress further revised the previously established enforcement scheme of BSA in the same 1986 legislation by authorizing, also for the first time, the OCC to use its CMP authority to facilitate compliance with BSA. Here again, however, Congress imposed a specific restriction limiting the use of CMP authority by the OCC to violations of cease and desist orders issued against national banks pursuant to section8(s)(3).^[34] It is undisputed that prior to 1989, the statutory scheme designed by Congress to enforce compliance with BSA and its implementing regulations did not include the authority of the OCC to impose a civil money penalty for a violation of BSA, or any BSA-based regulation, including section 21.21.^[35]

2. Congress did not revise the enforcement scheme it had established previously regarding the assessment of civil money penalties for BSA related violations of law when it enacted FIRREA^[36] in 1989.

At the outset, it should be noted that over the past thirteen years since the CMP statute was amended in 1989, the public record shows that the OCC has never issued a Notice of Assessment against an officer of a national bank for an alleged violation of: BSA or any BSA-based regulation, including section 21.21.^[37] The reason for that statistic is simple: the 1989 amendment to the CMP statute did not change the preexisting enforcement scheme Congress had established between 1982 and 1986 regarding the use of CMP authority to enforce compliance with BSA and BSA-based regulations. Four separate and mutually exclusive arguments support that conclusion.

First, the legislative history of section 907 of FIRREA itself demonstrates that Congress was well aware of the impact a literal interpretation of the new CMP statute would have upon the enforcement scheme it had previously established regarding the use of CMP authority to enforce BSA. As a result, Congress included an explicit statement in the legislative record indicating very clearly that the authority to impose a penalty under the new CMP statute was not intended to overlap the prior specific grant of CMP authority to Treasury in 31 U.S.C. § 5321:

It is anticipated generally that use of this [new] authority by a federal banking agency would not be appropriate if there was a civil penalty authority under a more specific penalty statute such as 31 U.S.C. 5321. [ emphasis added.] ^[38]

It is significant that the quoted statement of the intended relationship between the new CMP statute and the pre-existing CMP authority of Treasury for BSA related violations was actually prepared by Treasury and presented to the U.S. Senate by Senator Jake Garn, who was then the Chairman of the Senate Committee on Banking, before final passage of FIRREA by the Senate. As though to “dot the i” for emphasis, the cited excerpt was placed as the penultimate paragraph of the analysis of section 902(a)(14) of the Senate Bill (S. 413) that provided the new language “any law or regulation” in the CMP statute.^[39] Accordingly, Treasury (and, of course, the OCC as a bureau of Treasury) was also very aware of the unambiguous and explicit expression of Congressional intent regarding the scope of CMP authority in 12 U.S.C. § 1818(i)(2) (as amended by FIRREA) and the CMP authority of Treasury under 31 U.S.C. § 5321.

By making a pointed reference in the legislative record that the new CMP authority was not intended to overlap its prior grant of CMP authority to Treasury under a specifically identified statute, Congress reconfirmed without equivocation that the new legislation was not intended to revise the previously established enforcement scheme regarding the use of the CMP power as an enforcement mechanism to affect compliance with BSA and its implementing regulations.

Second, Congress has not repealed section 8(s)(3). As previously discussed, that statute requires the OCC to enforce violations of section 21.21 by issuing a cease and desist order against the offending bank. If the CMP statute promulgated in 1989 is interpreted to mean the OCC has the authority to impose a CMP against a bank officer for violations of section 21.21, the provisions of section8(s)(3) are effectively rendered meaningless surplusage. Such an interpretation would violate the fundamental axiom of statutory construction that holds Congressional enactments are never presumed or construed as an effort in futility, such as (1) enacting a statute that is mere surplusage and a duplicate enactment of an existing statute, or (2) enacting a statute that effectively repeals or render other existing statutes meaningless surplusage. Independent Ins. Agents of America, Inc. v. Hawke, 211 F.3d 638, 643-44 (D.C. Cir. 2000) (“A broad reading [of an incidental powers statute] would render at least two other related statutes meaningless, in violation of the ‘endlessly reiterated principle of statutory construction ... that all words in a statute are to be assigned meaning, and that nothing therein is to be construed as surplusage,’ Qi-Zhuo v. Meissner, 70 F.3d 136, 139 (D.C. Cir. 1995).” [emphasis added]) See also Halverson v. Slater, 129 F.3d 180, 185 (D.C. Cir. 1997), quoting Ramah Navajo Sch. Bd., Inc. v. Babbitt, 87 F.3d 1338, 1344-45 n.6 (D.C. Cir. 1996) (“We will not ... assume that Congress intended for that jurisdiction[al] [provision] to be meaningless.”); and Benavides v. DEA, 968 F.2d 1243, 1248 (D.C. Cir.1992) (rejecting interpretation of a provision that would make it “either superfluous or meaningless”).

Third, if the amended CMP statute is construed as an overlap of the CMP authority of Treasury under 31 U.S.C. § 5321, an irreconcilable conflict emerges regarding the standard of proof required to establish liability to pay a penalty for the same violation. Under that scenario, the OCC would be able to impose a penalty under the CMP statute for a violation of BSA or section 21.21 without any evidence of culpability.^[40] In vivid contrast, however, Treasury would be precluded (with two minor exceptions)^[41] from invoking its CMP authority for the same BSA related violation unless that violation were “willful.” 31 U.S.C. § 5321(a) and 31 C.F.R. § 103.57. There is nothing in the legislative history of BSA or the CMP statute suggesting (and it is impossible to rationalize) that Congress intended to empower the OCC to impose a CMP for BSA related violations and at the same time preclude Treasury from imposing any penalty for the same violation.

In this same context, there is one other irreconcilable disparity that results if the authority of the OCC under the CMP statute is construed as overlapping the Treasury CMP authority. The amended CMP statute authorizes the OCC to assess graduated penalties ranging from $5,000 to $1,000.000 per day, depending upon the egregiousness of the violation and degree of culpability of the offender. There is nothing comparable in 31 U.S.C. § 5321 regarding Treasury’s CMP authority. As a result, the maximum CMP that Treasury could impose for a willful BSA related violation under title 31 would be dwarfed by the maximum CMP the OCC could impose under title 12 for the same willful violation. Compare 31 U.S.C. § 5321(a) with 12 U.S.C. § 1818(i)(2)(C).

This Court has recognized that where an interpretation of a statute based upon the “plain meaning” standard produces bizarre results such as those just discussed that, as a “matter of logic,” compels a common sense conclusion that Congress could not have meant or intended such results, the plain meaning construction cannot be upheld. Engine Mfrs. Ass'n v. EPA, 88 F.3d 1075, 1089 (D.C. Cir.1996); see also Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571 (1982) (“Courts may ignore plain language in a narrow category of cases where “the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.”). Accordingly, and in the absence of any indication that Congress intended such drastic differences between the enforcement authority of the OCC and that of Treasury to deal with the same violation, the Comptroller’s “plain meaning” construction of the amended CMP statute is not legally sustainable. Fourth, when Congress enacted the Money Laundering Suppression Act of 1994, it unequivocally reaffirmed the enforcement scheme regarding the use of CMP authority to enforce compliance with BSA. That law is codified at 31 U.S.C. § 5321(e) and provides in applicable part:

The Secretary of the Treasury shall delegate in accordance with section 5318(a)(1) ...any authority of the Secretary to assess a civil money penalty under this section on depository institutions (as defined in section 3 of the Federal Deposit Insurance Act) to the appropriate Federal banking agencies (as defined in such section 3).

Prior to final passage of that law, the Assistant Secretary of the Treasury for Enforcement testified before the Committee on Treasury Initiatives of the Senate Committee on Banking regarding the provisions of section 6 of S.1664, which was subsequently enacted and codified as section 5321(e):

Section 6 - Imposition of BSA Civil Penalties by Banking Agencies

This section [of the proposed new law] directs the Secretary to delegate the authority to assess BSA civil penalties to the federal banking agencies (OCC, the Federal Reserve, OTS, FDIC, and NCUA). From the inception of the BSA, Treasury has delegated [only] compliance and examination authority to these agencies.^[42]

* * *

I am of the view that serious consideration should be given to delegation of this operational function not only to the banking agencies, but to IRS for the non-bank financial institutions and to Customs for CMIR violations. All of these agencies have penalty authority and experience under other statutes.^[43]

The resulting negative inference is overwhelming. If the rule of construction cited earlier that statutory terms are never presumed or construed as meaningless surplusage is applied rationally, the wording of the 1994 statute supports two inescapable conclusions: (1) in the absence of a delegation of authority from Treasury, the OCC did not have the authority to assess a CMP for BSA related violations of law in 2001, and (2) the power of the OCC to impose a CMP for BSA related violations of law, even if delegated to the OCC by Treasury under the amended statute, would be limited to the assessment of a CMP on a national bank, not its officers.^[44] If the OCC did not have authority to assess a CMP for a BSA-related violations of law prior to the enactment of the 1994 legislation, it must be concluded that it did not have that authority after 1994 unless it had received a delegation of authority from Treasury pursuant to 31 U.S.C. § 5321(e). Since that delegation was never made, it must be concluded the OCC did not have authority to issue the Notice of Assessment in 2001.

Based upon the foregoing, it must be concluded that the Comptroller’s determination in the Final Order that the OCC was substantially justified in law to institute the CMP Action is erroneous, and that such action was therefore “not in accordance with the law” and exceeded the “statutory jurisdiction or authority” of the OCC, as provided in 5 U.S.C. §§ 706(2)(A) and (C).

IV. The OCC Acted in Bad Faith by Instituting a Civil Money Penalty Action for the Sole Purpose of Using the Enforcement Process Itself as a Means to Facilitate an Illicit Plan to Impose a Financial Penalty Without Due Process of Law.

A. Standard of Review.

The determination that a party acted in bad faith is a finding of fact, not a conclusion of law. American Hosp. Ass'n v. Sullivan, 938 F.2d 216, 220 (D.C. Cir. 1991) A finding of bad faith must be supported by “clear and convincing evidence” in the record that supports a firm conviction the alleged bad faith is true. Association of American Physicians and Surgeons, Inc. v. Clinton, 187 F.3d 655, 660 (D.C. Cir. 1999), citing Shepherd v. American Broadcasting Cos., Inc., 62 F.3d 1469, 1476-78 (D.C. Cir. 1995).

B. The OCC Instituted the CMP Action for the Sole Purpose of Facilitating a Plan to Impose a Financial Penalty Without an Adjudication of the Merit of the Charges in the Notice of Assessment.

1. Introductory Note.

Washburn does not raise the issue of bad faith as an independent or alternative basis for relief regarding his claim under EAJA. Rather, the matter is addressed solely to the inherent discretionary power of this Court to review certain circumstances and events regarding the manner in which the adverse adjudication under review in this appeal was initiated by the OCC vis-a-vis the legislative purpose of EAJA and the integrity of this Court.

Congress designed EAJA to “eliminate the financial disincentive” for persons situated like Washburn to challenge unreasonable or unauthorized assertions of governmental power, and to provide a means by which such persons can “vindicate their right” to be free from such improper and oppressive agency actions. Ardestani v. INS, 502 U.S. 129, 139 (1991) (“The clearly stated objective of the EAJA is to eliminate financial disincentives for those who would defend against unjustified governmental action, and thereby to deter the unreasonable exercise of Government authority.”) and Sullivan v. Hudson, 490 U.S. 877, 883 (1989) (“Congress passed the EAJA in response to its concern that persons may be deterred from seeking review of, or defending against, unreasonable governmental action because of the expense involved in securing the vindication of their rights.”) EAJA specifically empowers this Court to review the record of the underlying adversary adjudication for conformance with the requisite elements of a legally sustainable award under that statute. Such adjudicatory authority and the continuing need to preserve and protect the institutional integrity of the judiciary subsume the inherent authority of this Court to review any matter it deems appropriate to guard against any abuse of the adjudicatory process. It is in that vein that Washburn respectfully submits the question of whether the OCC administrative process and pre-litigation procedure that spawned the adversary adjudication under review in this appeal was itself manipulated and abused by OCC representatives for purpose of circumventing the central purpose of EAJA by imposing punishment without due process of law or accountability to an adjudicatory officer. Conduct undertaken in bad faith that gives rise to litigation is no more tolerable than bad faith conduct during the course of litigation. American Hosp. Ass'n v. Sullivan, supra, at 219-220. If the agency process that engendered the adverse adjudication was itself unauthorized, deceitful, and otherwise rooted bad faith, this Court has the inherent discretionary authority to determine whether and how any evidence of such action will be considered and what impact (if any) that evidence will have upon its decision.^[45]

2. The OCC acted in bad faith by using the regulatory enforcement process as a means to impose a financial penalty without regard to due process of law.

There is clear and compelling evidence in the record that shows the OCC issued the Notice of Assessment as part of an illicit plan to utilize the enforcement process as a means to an end, viz., punishing Washburn without regard for due process of law or intervention of an adjudicatory officer.

The record shows that the CMP Action was triggered by and based upon the CTR violations cited in the ROE 2000. JA 1-2, 60-61, 62- 65, 232-33, 247-50, 521. The record also shows the OCC instituted immediate action to implement its responsibilities regarding those violations at the Exit Review Meeting with the Board and the execution of the MOU. JA 343-47, 412-422, 424-34, 455-58. Such regulatory action was appropriate and should have ended there.

But someone in the OCC wanted more, thus setting in motion a flawed decision-making process that resulted in the unlawful institution of a CMP Action against Washburn. When Washburn unexpectedly refused to pay a consent penalty order during negotiations with the OCC from mid-November 2000 thru the end of January 2001, the OCC had a problem. The agency knew it had made repeated threats to institute a CMP Action based upon the CTR violations; however, it also knew a CMP Action had never been instituted previously by the agency for CTR violations since only Treasury had the authority to impose a CMP for such violations.^[46]

To save face and make good on its prior threats, one or more persons in the OCC devised a course of action or plan to realize three objectives: (1) avoid the jurisdictional problem of imposing a penalty for violations of the CTR regulation, (2) guarantee punishment of Washburn, and (3) eliminate any down-side risk of having to prove anything in a court of law. The plan was simple, easy to execute, and only had three elements:

1. Draft a Notice of Assessment accusing Washburn of causing or aiding and abetting the Bank’s violations of section 21.21, as such “violations” are implicitly reflected in the consolidated effect of the large number volume of CTR violations scheduled in the ROE 2000 and the Bank’s poor BSA compliance record due to Washburn’s consistently inept performance.

2. Set the amount of the penalty low enough (in this case $2,000) to make it impossible for Washburn to justify the “business decision” of requesting a hearing and incurring its attendant expense instead of agreeing to pay the penalty order by consent.

3. If Washburn refuses to pay the proposed penalty order by consent, issue the Notice of Assessment under the formal authority of the CMP statute, but with the undisclosed caveat that the agency will not permit the merit of such charges to be adjudicated, and continue to pressure Washburn to agree to a consent order.

Only two scenarios were possible under the plan, either of which would result in the imposition of a financial penalty against Washburn. Under scenario A, the OCC would use the pendency of the charges and the prohibitive financial burden imposed upon Washburn^[47] to

class=Section8>

request a hearing as “weapons” to coerce Washburn to sign a consent order. If for some unexpected reason that did not work and Washburn requested a hearing, the plan envisioned that scenario B would serve as an acceptable alternative. Under scenario B, if and when the OCC becomes convinced Washburn will not agree to a consent order, and after Washburn has sustained significant financial pain incurring the expense of prepare for the hearing he requested, the OCC would simply dismiss all charges.

The record plainly shows Washburn was prey to the OCC under both scenarios. On August 27, 2001, more than six months after the CMP Action was instituted, the OCC summarily dismissed all charges against Washburn without comment or explanation. The timing of that action was not an accident. It was taken only after Washburn had (1) requested a hearing, (2) demonstrated a clear intention to proceed with the hearing by incurring substantial legal expenses preparing for it, and (3) rejected a final effort by the OCC to convince Washburn to sign a stipulation agreement for a consent order. It was the last event that triggered the OCC decision to dismiss all charges.^[48]

Such timing, when coupled with the explanation given for the OCC dismissal of all charges (discussed below) and the background and context in which the CMP Action was instituted, combine to serve as clear and convincing evidence that the dismissal was the last step of a calculated plan undertaken by the OCC to abuse the agency’s enforcement power and manipulate the adjudication process as a means to an end never contemplated by Congress.

The OCC asks this Court to believe it dismissed the charges against Washburn because the agency did not have sufficient funds or other resources to participate in the hearing Washburn requested, as reflected by the following statements by OCC enforcement counsel:

[B]ecause of resource considerations, the OCC [decided] to issue a Letter of Reprimand ... in lieu of a final order of assessment of a civil money penalty ^[49]

* * *

The OCC [decided] it was best to not expend its limited resources to litigate a matter involving the assessment of a $2,000 civil money penalty.^[50]

* * *

The OCC [decided] it needed to conserve resources more than it needed to obtain a final order assessing a $2,000 civil money penalty against [Washburn].^[51]

All of the information needed to make the decision to abort the CMP Action for the reasons stated must have been known on the day the OCC issued the Notice of Assessment. How could the agency possibly not know? That being the case, it must also be true the core decision to dismiss the charges must have been made on the same day they were issued. The only unresolved issue was when the charges would be dismissed. Consequently, when the Notice of Assessment was issued, the OCC only pretended to offer Washburn the right to a hearing.

The charges were never issued for the purpose of assessing a penalty in accordance with the due process procedures provided in the CMP statute, the OCC Rules or Practice and Procedure, and the APA. Rather, the sole purpose of the Notice of Assessment was to initiate the enforcement and adjudication process so that it could be manipulated and used as a weapon to coerce Washburn to pay a consent order, or failing in that effort, to inflict a financial penalty on Washburn in the form of the legal fees and expenses he would incur to prepare for a hearing that the agency had already decided would never be convened.

Washburn submits the evidence in the record showing (1) the issuance formal charges without any factual basis for such charges; (2) the issuance of formal charges without any legal basis or authority; (3) the issuance of formal charges that were unprecedented in the prior regulatory and enforcement experience of the OCC; (4) the issuance of formal charges without any apparent regulatory purpose (given the MOU signed by the Board for the violations cited in the ROE 2000); (5) the issuance of charged violations of law that did not result in any financial harm to the Bank or benefit to Washburn; (6) the labored and contrived manner in which the charges were framed; (7) the persistent refusal of Washburn to heed repeated OCC demands for payment of a consent order; (8) the timing of the OCC decision to summarily dismiss all charges, and (9) the telling nature of the vacuous excuse offered to explain such dismissal - when considered collectively would compel a reasonable person to form a firm conviction that the OCC acted in bad faith.

The OCC seriously abused its statutory enforcement power for an illicit purpose, viz., to punish Washburn without regard for due process of law. The agency wantonly burdened Washburn with the expenditure of preparing for an adjudicatory proceeding that it knew would never happen. This Court upheld fee sanctions for precisely that type of misconduct in Lipsig v. National Student Marketing Corp., 663 F.2d 178, 181 (D.C. Cir. 1980) (“[A]dvocacy simply for the sake of burdening an opponent with unnecessary expenditures of time and effort clearly warrants recompense....”)

Washburn submits that the OCC actions taken against him in reference to the institution of the CMP Action against him were wanton, vexatious, highly prejudicial, and undertaken in bad faith.

CONCLUSION

Based upon the foregoing, Washburn respectfully asks this Court to vacate the Final Order and to remand the case to the Comptroller with instructions to pay the award claimed in the Application, and any other relief deemed appropriate. In that regard, Washburn also respectfully asks this Court to find that he is a “prevailing party” in this appeal and that his claim may also include the fees and expenses incurred to bring this appeal.

Respectfully submitted,.

_____________________________

Stephens B. Woodrough

THE BANKING LAW FIRM

100 Beach Drive Suite 1801-03

St. Petersburg, Florida 33701

727-898-9009

Attorney for Appellant

Dale E. Washburn

January 15, 2003

^[1] Appellant Washburn relies chiefly upon the decisions marked with asterisks.

^[2] Copies of the statutes, regulations and other sources marked with asterisks are included in the Addendum.

^[3] All of the abbreviation terms and acronyms listed herein are also identified in the text of the Brief where the term or acronym is used for the first time. For added convenience, this Glossary also includes citations to the Joint Appendix [“JA __”] to locate the beginning page of a referenced document.

^[4] Although technically comprised of other provisions in the U.S. Code (e.g., 12 U.S.C. §§ 1818(i)(2)(A)(ii), 1818(s), and 1829b, and 18 U.S.C. §§ 1956 and 1957, the cited provisions codified at 31 U.S.C.§§ 5311-30 are commonly understood to comprise the Bank Secrecy Act. That Act is also occasionally identified as “subchapter II of chapter 53 of title 31” of the U.S. Code. See, e.g., 12 U.S.C. § 1818(s)(1).

^[5] This pleading was mistakenly styled as an “Amended Application.”

^[6] EAJA is also codified at 28 U.S.C. § 2412 where the adversary adjudication instituted by the agency is subject to initial judicial review by a U.S. District Court.

^[7] This pleading was mistakenly styled as an “Amended Application.”

^[8] This pleading was mistakenly styled as a “Response” to Washburn Response to the OCC Answer.

^[9] This pleading was mistakenly styled as an “Amended Application.”

^[10] Ibid.

^[11] This pleading was mistakenly styled as a “Reply” to the OCC Answer to the Application.

^[12] Supporting references to the record are to the stamped pagination numbers in the separately bound Joint Appendix filed concurrently with this Brief, and are cited herein as “JA __.” The Joint Appendix is comprised of Volume I (JA 1 -184 - records pertaining to the underlying CMP Action against Washburn) and Volume II (JA 185-552 - records pertaining to the EAJA Application filed by Washburn).

^[13] See Argument, infra, n.42 at 38. The letter was part of a rejected final settlement offer by the OCC.

^[14] The OCC examination in June 2000 was conducted on the basis of the Bank’s books “as of” March 31, 2000. Consequently, the official date of that examination is March 31, 2000. [See, e.g., OCC letter to Washburn at JA 60-61 and the Consent Order proposed by OCC at JA 62.] Since the parties have consistently referred to that examination using the June 2000 designation, this Brief will continue that usage.

^[15] The pleading was mistakenly styled as a “Reply.”

^[16] The pleading was mistakenly styled as a “Response”.

^[17] The pleading was mistakenly styled as an “Amended Application.”

^[18] The documentary evidence in the record that support the statements of fact recited herein are the written statements, sworn affidavits and supporting documentary exhibits attached thereto of Frank E. Skaggs (JA 10-11 [Written Statement], 341-46 [Sworn Affidavit], 347-441 [Exhibits to Skaggs Affidavit]); Debbie Durham (JA 8-9 [Written Statement], 444-49 [Sworn Affidavit]); Dale E. Washburn (JA 13-14 [Written Statement], 452-58 [Sworn Affidavit], 459-502[Exhibits to Washburn Affidavit]); and Joseph Y. Holman (JA 508-09 [Sworn Affidavit],511-12 [Exhibit to Holman Affidavit]). In order to avoid an undue litany of repeated citations to the foregoing references, supporting citations to materials in the Joint Appendix are only made at the end of each paragraph and at the end of any footnote. The OCC has never disputed the accuracy of any statement of fact in any of the cited written statements and affidavits, or any factual information contained in any of the cited documentary exhibits attached to such written statements and affidavits.

^[19] The Bank’s first CEO, who was approved by the OCC, resigned after serving less than six months due to personal problems. JA 453, 457n.3.

^[20] In a heated exchange of raised voices (and in the presence of Davis and Durham), Ms Hirsch adamantly refused to provide any assistance to Washburn in his investigation of the CTR violations discovered during the June OCC examination. See Statement of Facts, infra, at 13.

^[21] While copies of the OCC examination reports for those years are not in the record and although Washburn has denied the characterization and severity of the criticisms reflected in the Notice of Assessment in his Answer, the fact that examiner criticisms were made is not disputed. JA 74.

^[22] The OCC singled out Washburn for punishment. The agency has never charged the Bank, or any other officer, director, or employee of the Bank with any type of misfeasance or nonfeasance regarding the violations of law committed by the Bank alleged in the Notice of Assessment. Indeed, the Bank has never received any type of communication from the OCC regarding such violations. According to the Bank’s records, the violations of law alleged in the Notice of Assessment never happened.

^[23] See United Brotherhood of Carpenters and Joiners of America, Local 2848 v. NLRB, 891 F.2d 1160, 1162 (5^th Cir. 1990) for an eloquent discussion of the different standards of judicial review of EAJA actions instituted under titles 5 and 28 of the U.S. Code.

^[24] The opinion in United States v. Yoffe, 775 F.2d 447, 449 (1^st Cir. 1985) indicates that the Courts of Appeals in all circuits, except for the D.C. Circuit, were in agreement, adding citations to opinions of the Courts of Appeals in the Eighth and Federal Circuits to those listed in Pierce.

^[25] One of the passages in the record cited in Alphin is identical to that cited by the Comptroller to support his substantial justification in fact determination, namely, opinion testimony of an agency expert. The Comptroller: “Examiners are to be given ‘significant deference’ and their opinions carry substantial weight.” JA 521. The record passage cited in Alphin: “The Board stated that the [agency’s] reliance on [an agency expert] report was not unreasonable because opinion testimony of [agency experts] is usually sufficient to establish violations.” Alphrin, supra, at 821.

^[26] The OCC and the Comptroller have never accounted for that discrepancy. There are very few options. The possibility the alleged violations of section 21.21 were suppressed from the ROE 2000 is extremely remote [no motive], as is the possibility the violations were omitted from the report through inadvertence or oversight [regulatory focus much too intense]. The most plausible explanation for the discrepancy (albeit improvable on the basis of this record) is that the charges alleged in the Notice of Assessment were not predicated upon the findings in the ROE 2000, but were the product of a very creative (and imaginative) draftsman. The written declarations of the OCC examiners at JA 247-50 ignore the issue and were prepared at the direction of OCC enforcement counsel for the sole purpose of supporting the agency’s position in litigation, secure in the knowledge the authors would never subjected to rigorous cross-examination regarding their content. The OCC has never furnished any type of oral or written notification to the Bank regarding alleged violations of section 21.21 by the Bank. The violations alleged in the Notice of Assessment existed outside of that document only in the minds of those involved with the plan to punish Washburn without regard for due process of law. See Argument, infra, at 34-40 regarding the OCC’s alleged bad faith.

^[27] Such information is required to be considered where a civil money penalty is based solely upon alleged violations of law. See Interagency Policy Regarding the Assessment of Civil Money Penalties Adopted by the Federal Financial Institutions Examinations Council, 63 Fed. Reg. 30227 (1998); 1998 W.L. 280287.

^[28] The Porter declaration never focuses upon any factual event or circumstance showing the cause of a violation of any particular requirement in section 21.21 by the Bank. Instead, the examiner’s attention is directed solely to the cause of the CTR violations cited in the ROE 2000. The CTR violations, of course, are not charged in the Notice of Assessment.

^[29] A cursory review of the Porter declaration shows the Comptroller’s characterization is factually incorrect and extremely misleading. The Porter declaration states only that the CTR violations might not have occurred if Washburn had performed his duties properly, not because the Bank failed to comply with section 21.21. The Comptroller failed to recognize the difference between the sufficiency of evidence needed to show a violation of section 21.21 committed by the Bank and that needed to show a breach of internal Bank policy or procedure by an officer. They are not the same. See Exceptions of Washburn at JA 535n.24

^[30] See Exceptions of Washburn at JA 532-35.

^[31] In deciding whether the term “costs” in 28 U.S.C. § 1927 (permitting a court to tax excess “costs” under certain circumstances) was limited to the components listed in 28 U.S.C. § 1920, the court was urged to look to the “plain meaning” of the components that comprise the “costs” of litigation in other similar litigation expense-shifting statutes (42 U.S.C. §§ 1988 and 2000e-5 (k)). The Supreme Court in Roadway declined to follow such a literal interpretive approach without first determining whether there was any indication in the legislative history of a Congressional scheme or design that reflected an intent to limit the meaning of the term “costs” in the statute under review. The Court then proceeded with its “careful consideration” approach and based its decision upon a comprehensive analysis of the legislative history of the statute under review. 447 U.S. at 759-64. The same “careful consideration” approach is warranted in this case.

^[32] The Assistant Secretary of the Treasury for Enforcement so testified before Congress in March 1994 - three years before the OCC issued the Notice of Assessment. 1994 W.L. 224698.

^[33] It is important to note that when section 8(s)(3) was enacted in 1986, the OCC already had authority to issue C&D Orders to enforce violations of OCC regulations. It is a basic cannon of construction that statutory terms are never construed as superfluous or meaningless surplusage. Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979) (“In construing a statute we are obliged to give effect, if possible, to every word Congress used.”) The only way to avoid construing section8(s)(3) as a superfluous, duplicate grant of C&D authority is to apply a strict interpretation of all of its terms, including a mandatory interpretation of the term “shall” and a literal interpretation of the term “insured depository interpretation” that excludes individuals.

^[34] Ibid In 1986, the OCC already had the authority to assess a CMP for a violation of a final C&D Order issued by the agency, Here also, therefore, the statute must be interpreted in a manner that avoids its constr6ction as nothing more than a duplicate (and therefore superfluous) grant of existing authority, thus further reinforcing a mandatory interpretation of the term “shall” in the statute.

^[35] Prior to 1989, CMP authority of the OCC was limited to violations final agency orders and violations of specified laws and implementing regulations governing transactions with bank insiders and banking affiliates, changes in bank control, and bank management interlocks.

^[36] The acronym is for the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Section 907 of FIRREA amended the CMP statute by authorizing the assessment of a penalty for a violation of “any law or regulation.” The amended statute also authorized the assessment of graduated penalties at three “tier” levels, ranging from $5,000 per day to $1,000,000 per day, depending upon the egregiousness of the violation and the degree of culpability of the offender.

^[37] Washburn does not argue the failure to invoke a statutory power is conclusive of anything. On the other hand, it is submitted that where the authority of an agency is formally challenged and the public record appears to indicate the agency has never previously invoked that authority since it was purportedly first granted by Congress over thirteen years ago, it is not unreasonable to request that the agency either show that it has in fact previously invoked the power in question, or explain why it had never used that power previously. In this regard, the OCC has never responded to Washburn’s challenge to identify a single case where it issued a Notice of Assessment against an officer of a national bank based upon the same charges issued against him. See JA 285. Washburn expands that challenge here for the OCC to identify in its response to this Brief a single case where the agency issued a Notice of Assessment against an officer of a national bank for alleged violations of BSA, or any requirement in 31 C.F.R. Part 103 or section 21.21.

^[38] 135 Cong. Rec. S2379-02 at S2393 (daily ed., March 8, 1989); 1989 W.L. 171463.

^[39] Ibid.

^[40]That rule of law was established prior to FIRREA in Fitzpatrick v. FDIC, 765 F.2d 569, 576 (6^th Cir. 1985), where the agency’s assessment of a CMP was upheld for violations that were essentially technical and the product of careless oversight. (“While it may be argued Congress did not intend to impose a strict liability standard for violations [of law], it is clear ... that willfulness is not an essential element of [proof to establish CMP liability for such] violation.” [emphasis added]) The same holding was confirmed after FIRREA in Lowe v. FDIC, 958 F.2d 1526, 1535 (11^th Cir. 1992) (“A careful reading of the language, the legislative history, and the purpose of the [CMP statute] leads us to [the conclusion that] culpability is not relevant to establishing [CMP liability for violations of law.]” [emphasis added and footnote omitted])

^[41] 31 C.F.R. § 103.57(d) does not require culpability, but the penalty amount is restricted to the sum of money that was not reported in violation of the regulation; and 31 C.F.R. § 103.57(h) permits the assessment of a maximum penalty of $300 for negligent violations.

^[42] The referenced delegation to the federal banking agencies is provided in 31 C.F.R. § 103.56.

^[43] 1994 W.L. 224698. See also concurring description with a cross-reference to the Assistant Secretary’s testimony at H.R. Conf, Rept. No. 103-652 at 190, reprinted in 1994 U.S.C.C.A.N. 1977 at 2020-21.

^[44] Section 5321(e)(1)) includes two cross-references to different definitions in section 3 of FDIA. The first is to the definition in section 3(q) which identifies the agencies to receive the delegation; the second reference is to the definition of “depository institution” in section 3(c) and specifically identifies the recipient of a CMP order issued under the new CMP authority to be delegated by Treasury to the OCC. While not a “rule” of construction in the pure sense of that term, it is arguable the familiar maxim “expressio unius est exclusio alterius” indicates a legislative intent to limit the scope of the delegated authority to the imposition of CMP orders on institutions, not individuals. In the process of incorporating specific cross-references to different definitions in section 3 of FDIA in section 5321(e), Congress did not include a cross-reference to the definition of “institution affiliated party” in section 3(u) of FDIA.

^[45] Interestingly, EAJA provides for the effect of pre-litigation bad faith on the part of the private party seeking an award (it is implied in the “special circumstances” provision in section 504(a)(1) and is expressly stated in section 504(a)(4)); however, the statute does not address the reverse corollary. Washburn submits such a provision is unnecessary in view of the inherent power of this Court to address that issue.

^[46] See Argument, supra, n.26 and accompanying text at 28.

^[47] When the plan was formulated (probably late January or early February 2001), the OCC had very detailed and current information regarding the limited financial capacity of Washburn. JA 1, 58-59.

^[48] The record shows Washburn received a settlement proposal from the OCC in July 2001. See Application at JA 188 n.5. The agency proposed to drop the CMP Action and issue a letter of reprimand if Washburn would agree to consent to the issuance of a personal cease and desist order. Washburn rejected the proposal under the terms demanded by the OCC, and the letter of reprimand (which the OCC had forwarded to Washburn’s attorney) was not delivered to Washburn since it was part of a rejected settlement proposal.

^[49] OCC Answer to the Application at JA 225.

^[50] OCC Reply to Washburn Response at JA 312.

^[51] Ibid. at JA 316.