Petition for Review of a Decision of the Office of Thrift Supervision United States Department of the Treasury. OTS AP 91-6, Order No. AP 92-123
Before: Procter Hug, Jr., Cynthia Holcomb Hall, and David R. Thompson, Circuit Judges. Opinion by Judge Hug.
Petitioner Jess T. Simpson challenges the administrative proceeding brought against him by the Office of Thrift Supervision ("OTS"). On November 18, 1992, the Director of the OTS ("the Director") issued its final decision and order requiring Simpson to, among other things, pay restitution to Cascade Savings Bank for banking violations. Simpson timely petitioned for review of the Director's decision on December 7, 1992. The Director issued a second order on January 4, 1993, modifying the amount of restitution ordered. Simpson timely petitioned for review of the second order on January 27, 1993. The two petitions have been consolidated.
Simpson raises several challenges to the Director's decision. First, he raises three constitutional claims: 1) the separation of powers doctrine was violated by allowing a non-Article III tribunal to adjudicate his claims; 2) he was denied his Seventh Amendment right to a jury trial; and 3) he was denied procedural due process of law. Simpson also alleges that the statute of limitations bars portions of the restitution ordered. Finally, Simpson contends that the Director erred by concluding that he acted with "reckless disregard" or was unjustly enriched.
We have jurisdiction pursuant to 12 U.S.C. § 1818(h)(2). We conclude that Simpson's constitutional rights were not violated. Further, the restitution order was not barred by the statute of limitations, and the Director did not err in concluding that Simpson acted with reckless disregard. Accordingly, we affirm.
FACTS AND PRIOR PROCEEDINGS
Jess T. Simpson was president and chairman of the board of Cascade Savings Bank ("Cascade"), a Washington state-chartered mutual savings and loan association, from 1955 until he resigned on March 13, 1990. Following Simpson's resignation, Cascade hired K.P. Zech, of Z-Associates, Inc., to investigate Simpson. The investigation resulted in a report raising four separate claims of suspected impropriety against Simpson.
Simpson and Cascade failed to reach a settlement regarding the four claims. The OTS thereafter began an investigation of Simpson, culminating in the filing of the Notice of Charges against Simpson on February 12, 1991. Specifically, the Notice of Charges alleged that Simpson engaged in unsafe or unsound practices and "committed acts that constitute willful disregard for Cascade's safety and soundness and breaches of fiduciary duty . . . ." The OTS sought restitution from Simpson for the alleged violations of banking practices.
The unsound practices involved a profit-sharing plan in which Simpson distributed $529,500 in profits to Cascade officers and managers, including $105,000 to himself in 1989. The 1989 final audit revealed, however, that Simpson should not have distributed any profits. The Notice of Charges also alleged that Simpson breached his fiduciary duty to Cascade when he failed to disclose certain details to the loan committee and Board of Directors when it was approving a loan ("the Previs loan") that Simpson arranged. When the borrowers later defaulted, Cascade lost approximately $328,424 on the loan. Finally, the Notice of Charges alleged that Simpson usurped Cascade's corporate opportunities by setting up an independent insurance agency, Insurance Commerce, Inc. ("ICI"), to which commissions were diverted from Cascade customers' purchase of mortgage life insurance. ICI received approximately $161,000 in commissions. Simpson does not challenge the underlying merits of the Previs loan or the ICI commissions claims; rather, Simpson only asserts that the claims are partially barred by the applicable statute of limitations.
The OTS has authority to pursue cease-and-desist proceedings against an institution or an institution-affiliated party if, in its opinion, it has reasonable cause to believe that the institution or the institution-affiliated party has engaged, or is about to engage, in unsafe or unsound business practices, or is violating, or is about to violate, the law. See 12 U.S.C. § 1818(b)(1). At all relevant times, Simpson was an institution-affiliated party of Cascade in accordance with 12 U.S.C. § 1813(u).
The process begins when the OTS issues the Notice of Charges. See 12 C.F.R. § 509.18. After the notice issued, Simpson timely filed an answer. See 12 C.F.R. § 509.19(a). Pursuant to 12 U.S.C. § 1818(b)(1) and 12 C.F.R. § 505.5, Simpson received a hearing before Administrative Law Judge Paul Cross ("the ALJ") from August 26 to August 30, 1991. The ALJ recommended that Simpson be ordered to pay restitution for the amount Simpson distributed to himself, for the amount of the loss on the Previs loan, and for all commissions paid to ICI. In addition, the ALJ imposed a $138,013 civil penalty on Simpson.
At the Conclusion of the proceedings, the ALJ filed the record of the proceedings with the Director, including the ALJ's recommended decision, findings of fact and Conclusions of law, as well as any transcripts, briefs, motions, rulings, etc. See 12 C.F.R. § 509.38. Both parties took exception to the ALJ's recommended findings of fact and Conclusions of law. The Director of the OTS reviewed the complete record and issued its final decision and order. The Director determined that Simpson acted with reckless disregard not only in distributing the profit-sharing to himself, but also when Simpson distributed profit-sharing to the other managers. The Director increased the restitution amount to $1,009,446, taking into account the entire amount of profit-sharing Simpson approved and distributed. However, the Director reversed the ALJ's civil penalty assessment. After learning that Cascade's Board of Directors removed $105,000 from Simpson's account, the Director issued a second order reducing the ordered restitution by that amount. The Director's decision is reviewable by our court pursuant to 12 U.S.C. § 1818(h)(2).
Simpson contends that the adjudication of his case by a non-Article III tribunal violated the separation of powers doctrine provided by the United States Constitution. This claim must fail.
"On its most fundamental plane, the separation of powers doctrine protects the whole constitutional structure by requiring that each branch retain its essential powers and independence." Pacemaker Diagnostic Clinic of America v. Instromedix, 725 F.2d 537, 544 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 83 L. Ed. 2d 45, 105 S. Ct. 100 (1984). It is a well-settled rule that "the judicial power of the United States must be exercised by courts having the attributes prescribed in Art. III." Northern Pipeline Co. v. Marathon Pipeline Co., ...