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HARALSON v. FHLBB

November 18, 1987

John B. Haralson, et al., Plaintiffs,
v.
The Federal Home Loan Bank Board, et al., Defendants



The opinion of the court was delivered by: JOHNSON

 NORMA HOLLOWAY JOHNSON, UNITED STATES DISTRICT JUDGE.

 This matter is presently before the Court on the motion of defendants for reconsideration. By Memorandum Opinion and Order, filed January 13, 1987, this Court granted the motion of plaintiffs which challenged the Bank Board's classification of assets regulations. Haralson v. FHLBB, 655 F. Supp. 1561 (D.D.C. 1987). It was held that due to inadequate notice, R41b could have no binding effect on plaintiffs.

 Defendants move for reconsideration asserting that facts not previously before the Court with respect to R41b resulted in an incomplete and inaccurate factual record in that all interested parties had actual notice of the terms of R41b. Moreover, defendants contend that the utilization of R41b in the final rules was a logical outgrowth of the rulemaking process.

 Plaintiffs oppose the motion for reconsideration arguing, consistently with their earlier position, that R41b, a mere informal memorandum that allowed no public comment, is now being utilized to write-down loans with neither notice nor opportunity to comment on it and is clearly not a logical outgrowth of the rulemaking process.

 Defendants support their contention that all plaintiffs had actual notice of the terms of R41b before the NPRM and the Final Classification of Assets Regulations were issued with affidavits and exhibits. Plaintiffs do not controvert this evidence.

 I. Notice

 Section 553(b) of the APA requires that interested parties have notice of proposed rulemaking and of the subject of the rulemaking so that the parties may meaningfully participate therein. There is no dispute that notice of the proposed rulemaking was published in the Federal Register thereby satisfying the first prong of § 553(b). See NPRM. Accordingly, the Court must proceed to consider whether there is any merit to plaintiffs' argument that notice of the inclusion of R41b as one of the subjects of the rulemaking was inadequate.

 Defendants have demonstrated that in response to the NPRM in question, comments were submitted which expressly addressed R41b. *fn1" See Exhibit H. Defendants conclude, and the Court must agree, that those comments which expressly addressed R41b, submitted in response to the NPRM, provide clear evidence that the NPRM must have "fairly apprise[d] interested parties of the issues involved . . .", Pennzoil Co. v. FERC, 645 F.2d 360, 361 (5th Cir.) cert. denied, 454 U.S. 1142, 71 L. Ed. 2d 293, 102 S. Ct. 1000 (1982), allowing for meaningful participation and indicate furthermore that such participation did, in fact, occur. The notice requirements of APA § 553(b) have thereby been met.

 Finally, it is evident that plaintiffs had notice of the proposed use of R41b by the Bank Board and the accompanying need for the regulated institutions real estate appraisals to conform with R41b standards in order to avoid adverse consequences. Section 552(a) of the APA requires that a person may not be adversely affected by a matter not published in the Federal Register "except to the extent that a person has actual and timely notice of the terms thereof." 5 U.S.C. § 552(a). Defendants have submitted evidence that plaintiffs knew since the early 1980's that the Bank Board requires that appraisals meet the standards of R41b. See Exhibits D through G. In various letters and documents proffered by defendants, plaintiffs repeatedly indicated that they attempted to use appraisals which conform to R41b in order to satisfy Bank Board requirements, evidencing plaintiffs' knowledge of the need for appraisals to conform to R41b as well as the possibility of adverse repercussions by the Bank Board if such were not done. Thus, the Court finds that notice of the use of R41b as an integral part of the regulatory scheme was indeed adequate based on the Bank Board's long standing use of R41b as the definitive appraisal standards to be met by the institutions.

 II. Logical Outgrowth

 In a somewhat related line of argument, plaintiffs next assert that the public never had an opportunity to comment on R41b and that even if the content of R41b was widely known within the banking community, the "new use" of R41b was not previously known nor was it a logical outgrowth of the rulemaking. *fn2" Defendants respond that comments addressing the use of R41b as a part of the regulatory scheme were, in fact, received and that the "new use" is not new but is a logical outgrowth of the prior use of R41b and an integral part of the new classification of assets regulations which were lawfully promulgated.

 The proposed regulations made crystal clear that the most important element of any classification system would be a method of securing accurate valuations of the collateral accepted by the regulated institutions as security for loans made by those institutions. One of the many details of the final classification of assets regulations is the utilization of the Bank Board's well known and widely used appraisal standards set forth in R41b. The evidence presented by defendants of the actual notice to plaintiffs of the terms of R41b together with the historical familiarity of the purposes and use of R41b by the Bank Board and the stated purpose of the current rulemaking process leads the Court to agree that, as incorporated in the final classification of assets regulations, the present role of R41b in the regulatory scheme is a logical outgrowth of the rulemaking process of which there was adequate notice and opportunity for ...


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