WASHINGTON -- Banking attorneys say they will challenge in court a last-minute agreement between the Office of Thrift Supervision and a group of lawmakers that paved the way for passage of the interstate branching bill.
Ronald R. Glancz of Venable, Baetjer, Howard & Civiletti in Washington said he will sue the minute the OTS files a claim against one of his clients.
Mr. Glancz said he has several problems with the deal, which OTS. acting director Jonathan Fiechter details in a Sept. 13 letter to several senators, including Howard Metzenbaum, D-Ohio, and Banking Committee Chairman Donald W. Riegle Jr., D-Mich.
This deal resolved a problem that Sen. Metzenbaum had with a provision in the bill that did not go as far as he wanted in extending the statute of limitations for claims against directors and officers of failed institutions.
The senator used a procedural maneuver to make action on the bill difficult unless the assembly addressed his problem.
A group of senators tried to resolve Sen. Metzenbaum's objection by writing Mr. Fiechter on Sept. 12 and asking his agency to expand its prosecutorial efforts.
Mr. Fiechter, in his response, accepted the challenge. He wrote that the OTS will pursue the directors and officers of failed institutions to recover money for the insurance funds.
To do that, the agency rescinded part of an enforcement policy it adopted in April 1994 that limits OTS enforcement efforts to actions that maintain the health of the industry.
The policy specifically stated that the OTS will rely on the Federal Deposit Insurance Corp. and the Resolution Trust Corp. to pursue directors of failed institutions.
Instead, the OTS will go after the directors and officers itself -- using its own statute of limitations, which at six years is longer than the deadlines that apply to other agencies.
The agreement is limited to the OTS and the thrifts it regulates. The C0mptroller's office, which regulates national banks, is not involved.
"At this point we have not entered into any agreements and we were not asked to," said Janis L. Smith, a spokeswoman for that agency.
Sen. Metzenbaum said on the House floor Tuesday 'that the agreement satisfied him. "I think we have made a step in the right direction," he said.
But that may be a step in the direction of a suit. Mr. Glancz said he will base a case on the theory that the OTS may be bound by the same statute of limitations that applies to the FDIC and RTC if it is pursuing claims that other agencies normally would bring.
Also, Mr. Glancz said, the law does not clearly give the OTS the authority to bring these suits.
These two problems leave him determined to sue. "I am sure we are going to challenge it," he said.
His case may have merit, said Douglas Faucette of the Washington firm of Muldoon, Murphy & Faucette.
"There is certainly a lot to be said for that," he said, acknowledging, however, that he has not researched the issue.
Carolyn Lieberman, general counsel for the OTS, takes a different tack. She said Mr. Glancz has no case.
Because Congress gave the OTS power separate from the FDIC and RTC, the agency isn't subject to those agencies'statutes of limitations, Ms. Lieberman said.
Ms. Lieberman also questioned why Mr. Fiechter's letter drew so much attention.
"This is not new," she said, noting that the agency had been following this policy prior to April. "This is something people might not understand. We have been doing this."
Mr. Glancz and other attorneys said they are particularly outraged because the deal circumvents part of the very bill its was intended to free for passage.
He said the provision of the Riegle-Neal Interstate Banking and Branching Efficiency Act. of 1994 that Sen. Metzenbaum objected to restricts the ability of the FDIC and RTC to go after directors and officers of failed institutions except in cases of intentional misconduct.
This agreement, however, extends the liability of these officers and directors, he said. That's against the intent of the bill, he said. "I personally think it is an outrage," Mr. Glancz said. "It's an end run around Congress."
Not everyone is convinced the move was illegal, although most lawyers interviewed said the deal was outrageous.
"They probably have the authority, but it is probably poor public policy for them to reverse their policy," said Gilbert T. Schwartz of Skadden, Arps, Slate, Meager & Flom, Washington.
The policy also will transfer the FDIC and RTC cases from the federal courts to the OTS' administrative adjudication arena, said David W. Roderer of Winston & Strawn, Washington. That raises public policy questions about whether the OTS is the right forum to settle these claims, he said.
"It's big stuff," Mr. Roderer said.
It also means a litigant never gets a jury trial, Mr. Glancz said.
"There is a certain amount of unfairness to having the prosecutor, judge, 'and jury from the same agency," Mr. Glancz said.
Ms. Lieberman said that since the courts have repeatedly upheld the propriety of the administrative remedy process, Mr. Glancz's comments are not relevant.
The policy could put some former directors and officers on the line twice, Mr. Schwartz said.
"Are they [directors and officers] vulnerable to RTC and the OTS as well?" Mr. Schwartz asked. "It raises some sticky double jeopardy questions."
Ms. Lieberman said the agency never makes anyone pay twice.
Despite the debate, arguments over the impact of the agreement may be moot, several lawyers said.
Karen Thomas, regulatory counsel to the Independent Bankers Association of America, said no one can force the agency to comply with Mr. Fiechter's letter.
"It is just them reassuring the Senate," Ms. Thomas said. "They still have to look at staffing and funding and how far the agency can go." Mr. Roderer agreed, saying the agreement is "unenforceable."
Randy McFarlane, the government relations director at the Savings and Community Bankers of America, said the only way he sees the agreement working is for the other agencies to pay the OTS for the prosecutions.
"That's an essential element, because there can be some tremendous expenses involved," he said.
