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MAGEE v. GREENSPAN

May 16, 1991

JAMES L. MAGEE, Plaintiff
v.
ALAN GREENSPAN, et. al., Defendants. GAYLON M. LAWRENCE, Sr., Plaintiff v. ALAN GREENSPAN, et. al., Defendants.



The opinion of the court was delivered by: HAROLD H. GREENE

MEMORANDUM

 Farmers Bank and Trust in Blytheville, Arkansas, is a small community bank with approximately $ 111 million in total assets. Plaintiffs James Magee and Gaylon Lawrence Sr., have both worked for Farmers Bank since 1984, James Magee as Farmers Bank's Chief Executive Officer and Chairman of the Board; and Gaylon Lawrence, Sr. as a management consultant. James Magee controls 100% of Farmers Bank, either by ownership or as trustee. *fn1" Each plaintiff also owns or is otherwise involved with three other small banks in Arkansas and Missouri. *fn2"

 On April 18, 1991, plaintiffs filed suit to challenge review of the Federal Reserve's order of immediate suspension pending administrative review. 12 U.S.C. § 1818(f). *fn3" On April 22, after a hearing, this Court granted plaintiffs' motion for a temporary restraining order preventing the Federal Reserve from enforcing the suspension orders until this Court could undertake a more extensive review. That temporary restraining order was extended on May 6, 1991, at a hearing on plaintiffs' motion for preliminary injunction. Now after oral argument and briefing by all parties, the matter is ripe for this Court's review.

 I

 The Federal Reserve has based its suspensions on two practices of plaintiffs. First, Mr. Magee, without approval from the board of directors of Farmers Bank, directed that he and Mr. Lawrence be paid in excess of his salary or contractual amount respectively, through the Bank's miscellaneous expense account. Second, on the Reports of Condition and Income (Call Reports), which are filed quarterly with the Federal Reserve, these excess payments were included in the category of "noninterest/nonemployee expenses", rather than as salaries.

 The Federal Reserve asserts that since January of 1988, Mr. Magee directed payments to himself in the amount of $ 455,450 over his salary, and to Mr. Lawrence of $ 266,100 in excess of the payment set by his consulting contract. *fn4" In addition, the Federal Reserve asserts that Magee continued to make these payments to himself and Lawrence even after the Federal Reserve's bank examiners instructed him not to in mid-February of 1991, following the examination of Farmers Bank.

 The Federal Reserve alleges that Magee ordered these payments to be made from Farmers Bank's miscellaneous expense account to hide them from the board of directors and from federal regulators because he knew that the "exorbitant" payments constituted unsound and unsafe banking practices. The Federal Reserve also alleges that Lawrence and Magee knew that the Federal Reserve would object to Lawrence being paid in excess of the amount set by his contract with Farmers Bank. *fn5"

 II

 Generally, when reviewing an exercise of discretionary action by a federal agency, the Court may only overturn the agency's decision if after a review of the record, the agency's decision is found to be arbitrary or capricious. Chevron v. Natural Resources Defense Council, 467 U.S. 837, 842-45, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984); Investment Co. Institute v. FDIC, 259 U.S. App. D.C. 339, 815 F.2d 1540, 1550 (D.C. Cir. 1987). In the instant cases, the Court concludes, based on the suspension orders issued by defendant and its explanatory affidavits filed in this proceeding, see Environmental Defense Fund, Inc. v. Costle, 211 U.S. App. D.C. 313, 657 F.2d 275, 282-85 (D.C. Cir. 1981), that the Federal Reserve has made a reasoned decision. However, because these plaintiffs have also filed for preliminary injunctions, and based on prior precedent of this Court in regards to the instant statute, the Court also bases its conclusion that plaintiffs' motions must be denied on the evaluation that they have failed to establish the showing required for injunctive relief.

 III

 This Court has had prior occasion to interpret the instant statutory provisions in the cases of Anonymous v. FDIC, 619 F. Supp. 866 (D.D.C. 1985) and Anonymous v. FDIC, 617 F. Supp. 509 (D.D.C. 1985). In these cases, a banking official challenged his removal by the Federal Deposit Insurance Corporation. This Court, faced with a lack of precedent on the issue, held that to obtain a stay of a suspension order, pursuant to 12 U.S.C. § 1818(f), the plaintiff must satisfy the same requirements as for relief on a preliminary injunction. Anonymous, 617 F. Supp. at 513. The statutory provisions have somewhat changed since this Court's prior decisions, but there is still no other precedent to guide the discussion. In the instant cases, because plaintiffs have filed motions for a preliminary injunction, the determination of the motions for preliminary injunction become the same as determinations of the complaints on the merits to which the Court now turns.

 The traditional requirements of a preliminary injunction which the plaintiff must show in order to obtain relief are: a strong showing that plaintiff is likely to prevail on the merits; irreparable harm if the injunction is not granted; whether the injunction will work irreparable harm on others; and whether the public interest favors relief. Virginia Petroleum Jobbers Ass'n v. Federal Power Commission, 104 U.S. App. D.C. 106, 259 F.2d 921, 925 (D.C. Cir. 1958). As ...


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