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LENZ v. F.D.I.C.

March 7, 2003

RANDOLPH W. LENZ, PLAINTIFF,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Roberts, District Judge.

MEMORANDUM OPINION

Plaintiff has brought this action against the Federal Deposit Insurance Corporation (the "FDIC") and moved for an injunction pursuant to 12 U.S.C. § 1818(c)(2) (2000) to set aside or limit certain portions of a temporary cease and desist order (the "Order") entered against him by the FDIC. The FDIC has petitioned to enforce the Order pursuant to 12 U.S.C. § 1818(d) and moved to dismiss this action pursuant to Fed.R.Civ.P. 12(b)(6). Because the plaintiff failed to show that he has a substantial likelihood of success on the merits of his complaint, or that he will be irreparably harmed if the injunction is not issued, the plaintiff's motion for an injunction will be denied. Because the plaintiff has failed to obey the Order, the defendant's petition to enforce the Order will be granted. Finally, because the relief plaintiff has sought unsuccessfully in his motion is identical to the relief requested in his complaint, judgment will be entered for the FDIC, and the FDIC's motion to dismiss will be denied as moot.

BACKGROUND

Under 12 U.S.C. § 1818 (2000), if, in the FDIC's opinion, an insured depository institution or any of its directors has engaged in unsafe or unsound business practices or "has violated . . . a law, rule, or regulation, or any condition imposed . . . by the [FDIC] . . ., the [FDIC] may . . . issue and serve upon . . . such party a notice of charges . . . constituting the alleged violation." 12 U.S.C. § 1818(b)(1). The party is entitled to a hearing. Id.

The FDIC is also authorized to issue a temporary cease and desist ("asset freeze") order pending completion of the hearing if the alleged violation "is likely to cause insolvency or significant dissipation of assets . . . or to weaken the condition of the . . . institution or otherwise prejudice the interests of its depositors. . . ." 12 U.S.C. § 1818(c)(1). However, the FDIC may not issue an asset freeze order "unless the [FDIC] meets the standards of Rule 65 of the Federal Rules of Civil Procedure . . . without regard to the requirement of such rule that the applicant show that the injury, loss, or damage is irreparable and immediate." § 1818(b)(10).*fn1

After being "served with a temporary cease-and-desist order, the . . . party may apply to . . . the United States District Court for the District of Columbia, for an injunction setting aside, limiting, or suspending . . . such order pending the completion of the administrative proceedings. . . ." 12 U.S.C. § 1818(c)(2). Likewise, the FDIC may move to enforce a challenged asset freeze order. 12 U.S.C. § 1818(d).*fn2

Connecticut Bank of Commerce ("CBC") was closed on June 26, 2002 by the Connecticut banking commissioner, and the FDIC was appointed as the bank's receiver. Plaintiff Randolph Lenz was Chairman of CBC's Board of Directors. The FDIC conducted an examination and investigation of CBC and concluded that Lenz had engaged in massive insider abuse and fraud with regard to several loan transactions. According to the FDIC, the fraudulent loans unjustly enriched Lenz by $20 million and exposed the FDIC, as receiver for CBC, to losses in excess of $34 million on the unpaid loan balances.

Thereafter, in November 2002, the FDIC instituted administrative enforcement proceedings against Lenz. It served him with a notice of charges which alleged in 118 detailed paragraphs numerous specific violations of law and unsound banking practices attributable to him. As the FDIC has summarized them, the charges were that Lenz, as chairman of the board of CBC, engaged in "sham transactions featuring large sums of money loaned to `straw' or nominee borrowers, who immediately transferred the funds to Lenz, or to entities controlled by him. Other straw loans were made . . . to remove delinquent loans from the books of CBC and conceal the true financial condition of the bank from the FDIC and the Connecticut Banking Department." (Opp'n to Mot. for Prelim. Inj. at 3.) The notice specified 38 such loans valued at over $60 million.*fn3 Each was identified separately by the name of the borrower, and the date and amount of the loan. It specified that the amount of the unpaid balances on the outstanding fraudulent loans was at least $34 million.

The FDIC also issued a temporary cease and desist order against Lenz to prevent dissipation or concealment of his assets during the proceedings. The Order requires Lenz to post as security $34 million for the unpaid loan balances; bars him from selling, transferring or encumbering personal funds or assets, except assets used to pay reasonable living expenses and attorneys fees aggregating less than $10,000 per month; and requires him to make a series of disclosures to the FDIC concerning his income, assets and liabilities. Finally, the Order permits plaintiff to petition the FDIC directly for relief if undue hardship will result from abiding by the terms of the Order.

On December 5, 2002, Lenz filed his complaint in this Court alleging that the FDIC lacked authority to issue the Order in the absence of any actual injury, and acted in an arbitrary and capricious manner in issuing the Order. He seeks an injunction that either sets aside the Order, or 1) limits the amount of security requested by the FDIC, and 2) grants him monthly living expenses in an amount greater than the $10,000 per month allowed in the Order. The FDIC seeks to have the complaint dismissed and the Order enforced since plaintiff has not complied with it.

DISCUSSION

I. INJUNCTION

To obtain an injunction under § 1818(c)(2), a plaintiff must show "1) a substantial likelihood of success on the merits, 2) that [he] would suffer irreparable injury if the injunction is not granted, 3) that an injunction would not substantially injure other interested parties, and 4) that the public interest would be furthered by the injunction." CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d 738, 746 (D.C. Cir. 1995) (citation omitted); see also Davenport v. Int'l Bhd. of Teamsters, 166 F.3d 356, 360 (D.C. Cir. 1999); Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977). "If the arguments for one factor are particularly strong, an injunction may issue even if the arguments in other areas are rather weak." CityFed, 58 F.3d at 747 (affirming a denial of an injunction against a temporary cease and desist order where the movant failed to show irreparable injury).

Plaintiff contends that he is likely to succeed on the merits of his claim that the FDIC was not authorized to issue the Order because the FDIC did not meet the requirements of Fed.R.Civ.P. 65. According to the plaintiff, the FDIC has not alleged or proven that either CBC or the FDIC suffered any loss as a result of plaintiff's misconduct. He states that unless the FDIC can demonstrate that the borrowers of the loans bearing the $34 million in outstanding balances actually defaulted or are failing to make payments on the outstanding debt, the FDIC has no right to freeze plaintiff's assets or to order plaintiff to post security in the amount of $34 million. However, the FDIC has presented the sworn declaration of Michael Quarry, a credit account officer who manages loans within the FDIC's division responsible for administering the affairs of failed financial institutions for which the ...


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