STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF BANKING, )
)
Petitioner, )
vs. ) CASE NO. 92-2455
) BAY BANK AND TRUST COMPANY, )
)
Respondent. )
)
) DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF BANKING, )
)
Petitioner, )
vs. ) CASE NO. 92-3744
) BAY BANK AND TRUST COMPANY, ) JOHN CHRISTO, JR. and JOHN ) CHRISTO, III, )
)
Respondents. )
)
RECOMMENDED ORDER
Notice was provided and on various dates commencing on February 8, 1993 and concluding on July 7, 1993, a formal hearing was held in these cases. The authority for conducting the hearing is set forth in Section 120.57(1), Florida Statutes. The hearing was held in Tallahassee, Florida, with the exception being the March 22, 1993 session in Panama City, Florida. Charles C. Adams was the Hearing Officer.
APPEARANCES
For Petitioner: Alan C. Sundberg, Esquire
Robert Pass, Esquire
E. Kelley Bittick, Jr., Esquire Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
500 Barnett Bank Building
215 South Monroe Street Tallahassee, Florida 32301 and
William G. Reeves, General Counsel Albert T. Gimble, Chief Banking Counsel Department of Banking and Finance
Suite 1302, The Capitol Tallahassee, Florida 32399-0350
For Respondents: William A. Friedlander, Esquire
Raymond B. Vickers, Esquire Craig S. Kiser, Esquire
424 West Call Street Tallahassee, Florida 32301
STATEMENT OF THE ISSUES
In DOAH Case No. 92-2455 the Department of Banking and Finance, Division of Banking (Department) seeks to recover the costs of examination and supervision of Bay Bank and Trust Company (Bay Bank). As reason, Bay Bank is alleged to have engaged in unsafe or unsound practices as discovered in the examination the Department made of Bay Bank on March 31, 1991. In addition, the Department seeks to impose a late payment penalty in the amount of $100.00 per day commencing on November 15, 1991, and an administrative fine of $1000.00 per day commencing on December 16, 1991. See Section 655.045(1), Florida Statutes (1991).
In DOAH Case No. 92-3744 the Department seeks entry of a cease and desist order directed to Bay Bank and to John Christo, Jr. (Christo, Jr.) and John Christo, III (Christo, III). See Section 655.033, Florida Statutes (1991).
Moreover, the Department seeks to remove Christo, Jr. and Christo, III, as Bay Bank Directors and to prohibit their participation in the affairs of Bay Bank or any other financial institution regulated by the Department. See Section 655.037, Florida Statutes (1991). In particular the Department seeks to impose this discipline based upon alleged unsafe and unsound practices as determined through the Department's March 31, 1991, examination conducted at Bay Bank and the Federal Deposit Insurance Corporation (FDIC) examination conducted at Bay Bank on November 18, 1991; for alleged breaches of the written agreement entered into between Bay Bank and the Department following the March 31, 1991 examination; for alleged violation of the Federal Reserve Act, 12 C.F.R. s.
215.4, known as Regulation O; for alleged violation of Section 23A of the Federal Reserve Act, 12 U.S.C. s. 371(c), and for alleged violation of fiduciary duties associated with the previously described acts by Christo, Jr. and Christo, III.
PRELIMINARY STATEMENT
Bay Bank, Christo, Jr. and Christo, III, opposed the proposed disposition contemplated in the aforementioned cases by disagreeing with material facts found in the two administrative complaints. That led to the formal hearing conducted on the dates that have been identified.
A prehearing stipulation was entered into which is transmitted with this recommended order.
The witnesses that were presented by the respective parties and exhibits admitted at hearing are identified in the index to each transcript volume. The transcript is transmitted with the recommended order.
Exhibits which were denied admission are also transmitted with the recommended order, to include exhibits proffered for the record concerning alleged selective prosecution and the underlying testimony in support of that legal theory. Evidence concerning selective prosecution was ruled to be inappropriate to be considered in deliberating the decisions in support of the recommended order. The rejected exhibits associated with the proffer concerning alleged selective prosecution as well as exhibits which were rejected for
reasons unassociated with Respondents' claim that the Department was engaged in selective prosecution are submitted to complete the record should appellate court review be undertaken.
The exhibits which were offered are also discussed in Exhibit Lists prepared by the parties and transmitted with the Recommended Order. The decision to admit or deny exhibits is as explained in the transcript, with the exception that ruling was reserved on the decision to admit or deny certain exhibits by Respondents. Having considered those exhibits about which a decision had not been reached concerning their admission; R57D(a)2, R62C(220), R300, R302, R302(A) and R302(B) are admitted. R5(b)10, R5(b)y, R8, R11B, R11C, R15, R56(1), R56(11), R56(18), R56(22), R56(29), R56(37), R56(44), R56(49),
R56(66), R56(78), R56(88), R56(94), R56(99), R56(117), R56(124), R56(129),
R56(137), R56(141), R56(146), R56(150, R56(160), R56(167), R59(1)S&L, R60(49),
R87, R97, R102, R133, R147, R402/403(1), R404(1), R404(1)(a), R404(1)(b),
R404(1)(c), R404(1)(d), R412(1), R413(1), and R413(2) are denied admission.
The parties have submitted proposed recommended orders. Those proposals have been considered. The fact finding suggested by the proposed recommended orders is discussed in an Appendix to this recommended order.
FINDINGS OF FACT
Prehearing Stipulations of Fact
The following facts were admitted and required no proof at the final hearing:
At all times material hereto, Bay Bank and Trust Company ("Bay Bank") has been a state-chartered, federally insured bank operating under Charter No. 188-T, having a principal place of business at 509 Harrison Avenue, Box 1350, Panama City, Florida, 32402.
At all times material hereto, Florida Bay Bank, Inc. ("FBB") has been a Florida corporation operating as a one bank holding company. FBB owns 100 percent of Bay Bank.
At all times material hereto, John Christo, Jr. has been chairman of the board of FBB, John Christo, III has been president and Irene Christo has been secretary/treasurer.
Until November, 1992, John Christo, Jr. was Chairman of the Board and Chief Executive Officer of Bay Bank. From November, 1992, John Christo Jr. has been Chairman of the Board of Bay Bank.
Until July, 1992, John Christo, III was a Director and President of Bay Bank. From
July, 1992 until the present, Christo III has been Vice-Chairman of the Board of Bay Bank.
At all times material hereto, JCJ Irrevocable Trust ("JCJ Trust") has been a trust, the managing trustee of which has been John Christo, III. Each of the children of John Christo, Jr. has possessed a beneficial interest in JCJ Trust in at least the
following amounts:
John Christo, III - 40 percent
James Phillip Christo - 30 percent
Irene L. Christo - 30 percent
FBB has two classes of voting securities outstanding, voting preferred stock and
common stock. At all times material hereto, John Christo, Jr. owned approximately 97 percent of the preferred stock and JCJ Trust owned more than 65 percent of the common stock of FBB.
John Christo, Jr. was Chairman of the Board and owned approximately 32 percent of the outstanding shares of Bay Savings Bank, a state chartered savings and loan association in West Palm Beach. JCJ Trust owned approximately 37 percent of Bay Savings Bank. FBB owned approximately 5 percent of Bay Savings Bank. Bay Savings Bank failed and was placed in receivership by the Resolution Trust Corporation on September 6, 1992.
On April 18, 1986, the Board of Directors of Bay Bank voted to approve two irrevocable standby letters of credit in favor of SouthTrust Bank of Alabama, N.A.
("SouthTrust") for the benefit of John Christo, Jr. (LOC #281) and JCJ Trust (LOC #282) respectively. These letters of credit were unsecured.
These loans at SouthTrust were originally obtained by the Christos for the purpose of providing the initial capitalization of Bay Savings Bank in West Palm Beach. These
letters of credit were subsequently renewed and approved by the Board of Directors of Bay Bank on April 18, 1989 and again on February 15, 1990. These renewal letters of credit, like #281 and #282, were unsecured.
On February 19, 1991, the Board of Directors of Bay Bank voted to again renew the irrevocable letters of credit in favor of SouthTrust for the benefit of and to secure the debts of JCJ Trust and John Christo, Jr. to SouthTrust. Christo, Jr. was present at the board meeting when the board voted to approve LOC #509. Christo, III voted with the Board of Directors of Bay Bank to approve LOC #509.
On February 25, 1991, Bay Bank issued the irrevocable letter of credit (LOC #509) in favor of SouthTrust in the aggregate amount
of $425,000 for the benefit of and to secure a debt owed by JCJ Trust to SouthTrust. The terms of LOC #509 permitted SouthTrust to draw any amounts of funds due and payable to SouthTrust from JCJ Trust that were at least
30 days past due, up to the limit of LOC #509.
On September 23, 1991, SouthTrust sent Bay Bank a letter indicating that SouthTrust would draw on LOC #509 because JCJ Trust owed SouthTrust $433,429.17, which amount was past due for more than 30 days.
On October 2, 1991, Bay Bank funded a loan in the amount of $425,000 to JCJ Trust to cover LOC #509 as drawn upon by SouthTrust. The note was signed by Christo, III as trustee of JCJ Trust. The note was unsecured.
On February 25, 1991, Bay Bank issued the irrevocable letter of credit (LOC #510) in favor of SouthTrust in the aggregate amount
of $425,000 for the benefit of and to secure a debt by Christo, Jr. to SouthTrust. The terms of LOC #510 permitted SouthTrust to draw any amount of funds due and payable to SouthTrust from Christo, Jr. that were at least 30 days past due, up to the limit of LOC #510. Christo, Jr. was present at the board meeting when the board voted to approve LOC #510. John Christo, III voted with the Board of Directors to approve LOC #510.
On August 26, 1991, SouthTrust notified Bay Bank that it would draw on LOC #510 because Christo, Jr. owed SouthTrust
$425,000, which amount was past due for more than 30 days.
On September 3, 1991, Bay Bank funded an unsecured loan in the amount of $425,000 to Christo, Jr. to cover LOC #510 as drawn upon by SouthTrust. The note was signed by Christo, Jr.
Although bank documents reflect board approval of LOC #509 and #510, there is no bank document relating to LOC #509 or #510 reflecting approval by the Board of Directors, on or about the time of the issuance of LOC #509 and #510, of the terms of any loan to John Christo, Jr. or JCJ Trust that might be made should the letters of credit be drawn upon by SouthTrust.
In December, 1990, Bay Bank exchanged a 1986 Ferrari Testarossa with FBB in exchange for a 1984 Ferrari 4001. The Bank booked the value of the 4001 as $35,954 and FBB booked the value of the Testarossa at $110,793. The Testarossa had a market value in excess of that of the 4001. No security was given by FBB in connection with this transaction.
Other Facts
The State Examination and Findings Pursuant to Section 120.57(1)(b)15, Florida Statutes (1992 Supp.)
(Use of Manuals)
Consistent with long-standing practices in examining Bay Bank and other financial institutions over which the Department has had jurisdiction, it performed an examination to assess Bay Bank's financial condition and banking practices. This examination took place on March 31, 1991.
In performing the examination it employed the use of a manual produced by the FDIC which the Department has used in conducting examinations beginning in 1977, to include examinations of Bay Bank.
The Department also utilized its Examination Procedures Manual. Again, this manual had been referred to in the past when conducting examinations of this and other regulated institutions.
As had been its custom the Department also utilized a document known as Management Evaluation Guidelines, derived from information gained from the state of Texas. Prior to the March 31, 1991 examination the Department had used the Management Evaluation Guidelines in performing examinations of Bay Bank.
The Department has substantially affected the interest of Bay Bank and the Christos by resort to the three manuals in conducting the March 31, 1991 examination.
None of these manuals had been adopted as rules when the March 31, 1991 examination was made; however, on August 6, 1993, Respondent noticed its intent to adopt the manuals as rules through incorporation by reference into an existing chapter within the Florida Administrative Code.
The FDIC Manual establishes a rating system known as the Camel rating system. That acronym stands for measurements of a bank's condition related to capital, asset quality, management, earnings and liquidity. Out of component scores assigned to those measurements of the bank's condition, but not through averaging, an aggregate score is assigned which identifies the overall health of the institution. An aggregate score of 1 is the highest rating, with aggregate scores of 4 or 5 considered to be substandard.
In March, 1991, as in its general experience with prior examinations, the Department equated the assigned aggregate score of 4 with unsafe and unsound practices by Bay Bank. This opinion was held when taking into account the specific conditions within the bank found at the time of examination and as set forth in the post-examination written report.
The Camel rating system had its origin with the Federal Financial Institutions Examinations Council and was designed to identify institutions that needed closer supervisory attention. It is a system that had been used in regulation of banks since the 1970s.
The FDIC Manual and the state Examination Procedures Manual include definitions of the numerical ratings found within the Camel rating system. The source material for arriving at the Camel ratings are constituted of the lending institution's records and other information gathered during the examination sessions. In assigning the Camel ratings in the March 31, 1991 examination, the Department followed these approaches.
In addition to the Camel rating system, the FDIC Manual sets forth criteria related to determining whether a bank violated federal banking statutes
and regulations. On this occasion the Department considered the criteria set forth in the FDIC Manual to determine whether Bay Bank violated federal law.
The Department's Examination Procedures Manual explains procedural steps that the examiners took in conducting the March 31, 1991 examination.
The state Examination Procedures Manual affords latitude to the examiners to deviate from guidelines set forth in the manual if the deviation can be supported in writing. The right to deviate from the guidelines was available upon the occasion of the March 31, 1991 examination.
Over and above the possibility that an examiner, in this case an examiner performing the examination on March 31, 1991, would deviate from the guidelines set forth in the state Examination Procedures Manual, the entire examination process draws upon the experience of the examiner in a somewhat subjective manner and in recognition that the activity of bank examination is one that requires flexibility in thinking.
Specific guidance to the examiners contained within the state Examination Procedures Manual includes a statement of expected documentation that a bank should have in support of its loans, instructions concerning how to grade the bank, as well as how to proceed with the examination, to include various operational steps to be taken while conducting the examination. The state Examination Procedures Manual also sets forth personnel duties for the examiners.
The state Examination Procedures Manual sets forth the need for bankers to adhere to safe and sound banking practices.
The Management Evaluation Guidelines sets forth guidance for the examiners, to include their responsibilities in the March 31, 1991 examination, related to assessing bank management. This guidance is in addition to the guidance set forth in the FDIC Manual and the state Examination Procedures Manual. The Management Evaluation Guidelines sets out instructions about its use and provides worksheets to be executed in the assessment process. The rating system contemplated by the Management Evaluation Guidelines ties in with the Camel rating system.
Aside from the legal requirements set forth in Chapter 655, Florida Statutes, the Department has not established formal rules which would further define the term "unsafe and unsound" practices as that term describes the circumstances under which the Department would assess a bank for costs of examination and supervision, seek to order a bank or its directors, officers and employees to cease and desist or seek the removal of a bank's officers and directors and to restrict and prohibit those officers and directors from participating in the affairs of that bank or any other financial institution over which the Petitioner has regulatory authority.
Other than information gained during an examination, to include the March 31, 1991 examination, concerning perceptions held by the examiners about the Camel ratings for the bank, as reflected in the examination report provided to the bank and through the aforementioned manuals, the Department has made no attempt to specifically describe its use of the Camel ratings.
The explanation of the Camel rating as set forth in the three manuals would become codified requirements of law if the rule enactment process is concluded. The contents of those manuals would be specifically disseminated to
affected persons with that eventuality; however, such an arrangement would have only prospective utility as a means to specifically notify a regulated entity concerning the imposition of the regulatory terms set forth in the manuals.
When the March 31, 1991 report of examination was prepared there were no formal written rules or other written guidance concerning the occasion upon which the Department would seek a written agreement as opposed to an imposition of a cease and desist order in trying to correct problems with a bank discovered through the examination process. Instead, the Department exercised its discretion consistent with findings made during the examination.
The three manuals offer assistance in the proper exercise of regulatory discretion concerning corrective action directed to a given institution and had that part to play in the March 31, 1991 examination process as well as the overall decision to pursue the present cases.
As far back as 1984 it has not been the Department's policy to provide copies of the state Examination Procedures Manual to institutions being examined under its terms. It was not the policy to provide a copy of the state Examination Procedures Manual to the Bay Bank at the March 31, 1991 examination. On the other hand, there has never been any prohibition against allowing the members of the banking industry in Florida or others to have access to the state manual.
Similarly, the Department does not provide copies of the FDIC Manual to the public, nor did it provide a copy of the FDIC Manual to Bay Bank when the March 31, 1991 examination was conducted.
The Department does not deem the failure to provide that manual and the state Examination Procedures Manual as an inappropriate oversight.
The Department is not conversant with the opportunities which the public, to include Bay Bank, would have to obtain the FDIC Manual from federal officials. The Department makes the assumption that the FDIC Manual is available from the FDIC.
Finally, Respondent does not publish the Management Evaluation Guidelines for the benefit of members of the regulated industry, but it would provide a copy of the Management Evaluation Guidelines on request. In particular, it did not provide a copy of the Management Evaluation Guidelines to Bay Bank associated with the March 31, 1991 examination.
None of the three manuals discussed are deemed to be confidential.
Ultimately, the decision to take administrative action based upon the findings made in the March 31, 1991 examination must be factually supported and legally correct, whatever contribution was made to the regulatory function when the Department chose to make its customary usage of the three manuals in performing the March 31, 1991 examination.
Petitioners Exhibit No. 2 is the report of examination for March 31, 1991. It identifies the aggregate Camel rating of 4 and sets forth the reasons for that finding. As set forth in the report of examination there were numerous unsatisfactory conditions found during the March 31, 1991 examination. In particular, the findings in the report of examination identify a number of unsafe or unsound practices, together with other shortcomings in the performance by Bay Bank, its management, employees and directors.
In carrying out the examination of March 31, 1991, the examination team was constituted of 14 examiners to include two Area Financial Managers, two Financial Examiner Analyst Supervisors, and two Financial Specialists. Two members of the examination team were trainees. The work performed by the trainees was supervised and the examination findings made were not constituted of work performed by the trainees that had not been reviewed.
In conducting the examination 2,538 hours were devoted to the task. Additionally, the examiner in charge spent 116 hours planning the examination and writing the report of examination, activities conducted away from the bank. The costs of examination and supervision was $67,494.20.
Review was made of the examination report through various department employees. This arrangement was in accordance with normal departmental routine for conducting such review. The only notable change to the report prepared by the Examiner in Charge concerned the component Camel rating for assets wherein the Examiner in Charge had failed to offer a written explanation for assigning a component rating of 4 when written guidelines in the state Examination Procedures Manual called for a 5 for that component. Consequently the component rating was changed by the Bureau Chief for the area where Bay Bank conducts its business. This change for the asset component did not modify the overall Camel rating.
Among the unsafe and unsound practices discovered in the March 31, 1991 examination was Bay Bank's failure to establish an adequate loan loss reserve. The management and directors had set aside approximately 1.364 million dollars for loan loss reserve. The methodology utilized by the Department to identify an adequate loan loss reserve revealed the need for 4.05 million dollars to be available for that function. That methodology is accepted. Therefore, the deficiency in the loan loss reserve approximated 2.686 million dollars. This shortfall was brought about by the ineffective methods of risk identification which the bank management and its directors had utilized prior to the March 31, 1991 examination.
For a substantial period of time prior to the March 31, 1991 examination Bay Bank had maintained a significantly higher percentage of noncurrent loans and leases than its peers, while maintaining a loan loss reserve comparable to its peers. This contributed to the inadequate loan loss reserve.
Bay Bank questioned the formula employed by the Department to establish loan loss reserves wherein it is anticipated that 10 percent losses are contemplated for substandard loans. Bay Bank claimed to have a loss experience for substandard loans in the range of 2 to 4 percent. Nonetheless, the Bay Bank internal loan watch-list estimated the loss of approximately 9.14 percent for each loan that it had designated as substandard, which more closely approximates the formula utilized by the Department in establishing a proper loan loss reserve.
The deficiency in the loan loss reserve is high and contrary to standards expected of Bay Bank in maintaining a loan loss reserve, so much so that it constitutes an unsafe and unsound practice. Without providing an adequate reserve the financial health of the banking institution is at risk, in that the management has a false picture of the bank's condition when making decisions about banking activities. The deficiency in the loan loss reserve
creates the likelihood of abnormal risk or loss, insolvency, or dissipation of assets or other serious prejudice to the interests of the bank and its depositors.
During the March 31, 1991 examination, the examiners found numerous instances where the bank management had failed to establish or enforce internal routines and controls. Included within those findings were:
Improper recordation of other real estate (ORE) within the bank's books, contrary to bank loan policies,
Failure to obtain and maintain current appraisals on ORE and pending ORE,
Failure to establish adequate records to allow reconciliation of income and expenses relating to ORE and to maintain adequate documentation thereof,
Failure to comply with the bank's loan policies preventing the continued accrual of interest on loans delinquent 90 days or more,
Failure to implement credit risk grades established in loan policies more than a year before the examination period,
Disorganized and outdated loan file information,
Statutory violations associated with loans that were past due for more than a year and
Failure to document secured real estate loans as first liens, a requirement by the bank's loan policy and state law.
As the examination report states, Bay Bank's Board of Directors had implemented a corrective plan of action dated January 31, 1989, which responded to material deficiencies that had been reported in the June 30, 1988 FDIC report of examination and the November 30, 1987 Department report of examination. The findings within the March 31, 1991 examination show significant violations of the internal plan for corrective action implemented on January 31, 1989, especially in the area of adequate loan policies and the need to insure compliance with the requirements of law.
The failure to establish and enforce internal routines and controls and noncompliance with the January 31, 1989 corrective plan of action point to practices and conduct contrary to proper expectations incumbent upon Bay Bank, its management and directors, thereby constituting unsafe and unsound practices that creates the likelihood of abnormal risk or loss, insolvency, or dissipation of assets or otherwise seriously prejudices the interests of Bay Bank or its depositors.
The March 31, 1991 examination revealed violations of laws and regulations governing the bank's activities. Taken together these violations point to an unsafe and unsound practice that creates the likelihood of abnormal risk or loss, insolvency or dissipation of assets or otherwise seriously prejudices the interests of the bank or its depositors.
On the occasion of the March 31, 1991 examination it was appropriate for the Department to advise Bay Bank to refrain from paying dividends until
asset quality, earnings and capital had improved sufficiently to justify dividend payments. Prior to the examination Bay Bank had paid questionably high dividend amounts in a circumstance in which the bank's capital position was tenuous.
The excessive levels of adversely classified loans discovered during the March 31, 1991 examination were somewhat the product of conditions in the local economy. However, the outside influences in the economy did not completely explain the deteriorating loan portfolio and offer a defense to imprudent lending practices and the failure to adequately diversify the loan portfolio. The imprudent lending practices were manifested through inadequate risk identification and lack of proper attention to problem loans. In the final analysis the bank management and directors were responsible for the loan portfolio's substandard condition.
The circumstances associated with adversely classified loans as commented on in the March 31, 1991 examination report are indicators of unsafe and unsound practices by bank management and the directors, creating the likelihood of abnormal risk or loss, insolvency, or dissipation of assets or otherwise seriously prejudicing the interests of the bank or its depositors.
Costs of Examination, Late Payment Penalty and Administrative Fine
On July 26, 1991, the Department transmitted a copy of its March 31, 1991 examination report to Bay Bank. Then on July 31, 1991, the Department began a free-form negotiation process to try and get Bay Bank to honor an invoice in the amount of $67,494.20 which constituted the costs associated with examination and supervision for the March 31, 1991 examination. The theory for claiming those costs was pursuant to Section 655.045, Florida Statutes (1991), which indicates that the Department may recover the costs of the examination and supervision against banks engaging in unsafe and unsound practices as defined at Section 655.005(1)(d), Florida Statutes (1991).
The correspondence dated July 31, 1991, asked Bay Bank to remit payment within 30 days of receipt of the invoice setting forth the costs of the examination and supervision. The correspondence reminded Bay Bank that a late payment penalty of up to $100.00 a day might be imposed for overdue examination and supervisory fees. This reminder was as contemplated by Section 655.045, Florida Statutes (1991).
A dialogue commenced between the Department and Bay Bank through further correspondence in which Bay Bank was unavailing in its attempt to convince the Department that its practices as revealed through the March 31, 1991 examination were not unsafe and unsound, thereby setting aside the right for the Department to assess the costs of examination and supervision.
Rather than apprising Bay Bank that it could contest the preliminary agency decision concerning assessment of costs of examination and supervision related to the March 31, 1991 examination, by resort to procedures set forth in Section 120.57, Florida Statutes, the Department sent another free-form notification on October 2, 1991, stating that the Department continued to assert its claim based upon the belief that the practices found in the March 31, 1991 examination constituted unsafe and unsound practices. Again the October 2, 1991 correspondence instructed Bay Bank to remit $67,494.20 within 30 days of receipt of the letter.
Having failed to hear from the bank by virtue of its October 2, 1991 communication, the Department again wrote on November 13, 1991, this time telling Bay Bank that the Department had determined to impose a late payment penalty of $100.00 per day commencing November 5, 1991, and of the possibility of imposing a $1,000.00 per day administrative fines if payment were not received. This November 13, 1991, correspondence was free-form. As with prior correspondence it did not advise Bay Bank of its right to seek relief pursuant to Section 120.57, Florida Statutes.
On February 5, 1992, another free-form communication was provided vying for the cost of the examination and supervision related to the March 31, 1991 examination, reminding Bay Bank that the Department was persuaded that it was entitled to a late payment penalty of $100.00 per day commencing November 5, 1991, and informing Bay Bank that as of December 16, 1991, a date upon which the Department surmised Bay Bank had received an earlier communication, that the Department was imposing an administrative fine of $1,000.00 per day. As was the circumstance of prior occasions the February 5, 1992 correspondence was free- form and failed to advise Bay Bank concerning its right to seek administrative relief from the decision by the agency to seek the costs of examination and supervision for alleged unsafe and unsound practices.
Finally, the Department issued an administrative complaint to recover the costs of examination and supervision associated with the March 31, 1991 examination. This complaint was dated March 11, 1992, and advised Bay Bank of its right to contest the determination concerning whether the practices by Bay Bank were unsafe and unsound, thus entitling the Department to collect the costs of examination and supervision associated with the March 31, 1991 examination. The administrative complaint also asserted claims for late penalty and administrative fines dating from November 5, 1991 and December 16, 1991 respectively. Bay Bank contested the administrative complaint leading to the formal hearing which this recommended order addresses.
Absent a rule describing the occasion upon which the Department would seek to recover costs of examination and supervision for unsafe and unsound practices, the Department has acted rationally and has been acceptably consistent in exercising its discretion to recover the costs of examination and supervision when comparing the Bay Bank experience to other circumstances where the Department had the opportunity to recover costs of examination and supervision based upon unsafe and unsound practices within an institution.
Further Administrative Correction: The Written Agreement
Based upon the results of the March 31, 1991 examination the Department deemed it necessary to initiate administrative action against Bay Bank and its directors in accordance with Section 655.033, Florida Statutes (1991). That provision allows the Department to impose cease and desist orders for unsafe and unsound practices, violations of laws relating to the operation of the bank, violation of rules of the Department, violation of orders of the Department or breach of any written agreement with the Department. The law contemplates that a complaint shall be drawn stating the facts that support the action and noticing the accused of the opportunity to seek hearing pursuant to Section 120.57, Florida Statutes.
The Department did not file the formal administrative complaint. Instead, through negotiations with Bay Bank and its directors it addressed the concerns the Department had about the findings made in the report of examination
through entry of a written agreement between the Department and Bay Bank and its directors.
In anticipation of the written agreement the directors of Bay Bank passed a resolution in support of the written agreement. The directors took that action on September 17, 1991.
Two directors were not immediately available to execute the written agreement as such by signing the document. Their unavailability delayed the submission of the written agreement signed by Bay Bank until October 4, 1991. On that date Bay Bank transmitted the signed written agreement to the Department.
In support of the written agreement there was a stipulation between the parties to enter into the written agreement. Given the language of the stipulation to enter the written agreement and the written agreement itself, it was contemplated that both documents be executed simultaneously by the Bay Bank directors and that the Department would sign the stipulation to enter the written agreement at the time that the directors signed the stipulation to enter the written agreement. The signing of the stipulation to enter into the written agreement and the written agreement itself by Bay Bank directors and the signing of the stipulation to enter into the written agreement by the Department would make the written agreement effective upon the date of issuance by the Department subsequent to those activities. The written agreement would be issued after the Comptroller signed it.
The stipulation to enter into the written agreement was signed by both parties on October 7, 1991. The language employed with the signing of the stipulation to enter the written agreement stated:
WHEREFORE, and it is resolved, that in consideration of the foregoing, the Department and Bay Bank and Trust Co., Panama City, Florida and each of the directors, hereby execute this Stipulation and consent to its terms, this 7th day of October, 1991.
The exact language related to the effective date of the written agreement was set forth in the stipulation to enter into the written agreement at Paragraph 6 which stated:
Effectiveness. Bay Bank and each of the directors stipulate and agree that the Agreement attached hereto shall be effective on the date of its issuance by the Department.
The version of the written agreement upon which the Department has based its actions is dated September 29, 1991, and carries the Comptroller's signature.
On October 9, 1991, through correspondence from Department's counsel to counsel for Bay Bank, the Department acknowledged receipt of the written agreement signed by the directors.
The October 9, 1991 correspondence from the Department to the bank goes on to describe the notion that when the Comptroller signed the written agreement one of the originals would be forwarded to the bank for its file.
This comment makes the meaning of the September 29, 1991, signature by the Comptroller unclear. Further contributing to the confusion, there is a reference in the next paragraph to the October 9, 1991 correspondence, to the effect that some conversation was held between counsel for the Department and a Joel McLamore in the office of counsel for the bank, about an agreement made in the course of that conversation, that the written agreement had an effective date of September 29, 1991.
On October 14, 1991 the written agreement was docketed by the Department. On that same date the Department sent the bank a copy of the written agreement as executed by the Comptroller. Again, this correspondences from the Department stated that the written agreement had an effective date of November 29, 1991.
On November 12, 1991, further correspondence was directed from the Department to Bay Bank making mention that the Department considered the effective date of the agreement to be September 29, 1991.
Before the occasion of the administrative complaint seeking a cease and desist order and removal and prohibition directed to Christo, Jr. and Christo, III there was no dispute concerning the effective date of the written agreement. Now Bay Bank and the Christos assert that the written agreement was effective on October 7, 1991, contrary to the Department's position that the effective date is September 29, 1991.
The general purposes which the parties had in mind for entering into the stipulation for entry of the written agreement are set out in Paragraph 1 to that stipulation which states:
Consideration. The Department has determined that necessary grounds exist to initiate an administrative proceeding pursuant to Section 655.033, Florida Statutes, against Bay Bank and each of the directors. Bay Bank and each of the directors wish to cooperate with the Department and avoid the initiation of administrative litigation. Accordingly, Bay Bank and each of the directors, hereby stipulate and agree to the following terms in consideration of the Department's forbearance from initiating such administrative litigation through the attached Written Agreement (hereinafter Agreement).
This intent by the parties to resolve their differences is brought forth in the written agreement where it states:
WHEREAS, in an effort to avoid the consequences of protracted litigation and by virtue of signing the Stipulation, Bay Bank and each of the directors have waived their rights to separately stated Findings of Fact and Conclusions of Law, such findings and conclusions would be taken from and based upon the most recent State Report of Examination, specifically the State's Report of Examination dated March 31, 1991.
By the terms of the stipulation for entry into the written agreement Bay Bank and its directors consented had agreed to the entry of the written agreement and to comply with the provisions, without admitting or denying violations of laws or regulations or rules and without admitting or denying that those entities had engaged in any unsafe and unsound practices.
There was a section within the stipulation to enter into the written agreement which spoke to the matter of future administrative action by the Department against Bay Bank or its directors where it stated:
7. Future Action. The Stipulation is being entered into without prejudice to the rights of the Department and to take such further action, joint or severally, against Bay Bank and the directors as the Department deems necessary and appropriate to insure compliance with the terms of the Stipulation and the attached Agreement, any other Agreement or order entered against Bay Bank, and/or to prevent any violation of laws relating to financial institutions.
The written agreement did not speak to the opportunity for the Department to seek costs of examination and supervision pursuant to Section 655.045, Florida Statutes (1991), and to pursue removal and prohibition actions against Christo, Jr., and Christo, III, as Bay Bank officers pursuant to Section 655.037, Florida Statutes (1991), based upon findings made in the March 31, 1991 examination.
Among requirements of the written agreement was found Paragraph 5 (a) which states:
As of the effective date of this Agreement, the Bank shall not extend, directly or indirectly, any additional credit to or for the benefit of any borrower who has a loan or other extension of credit from the Bank which has been charged-off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. The prohibition of this paragraph 5(a) shall not prohibit the Bank from renewing or extending the maturity of any credit, provided that the renewal or extension is approved by the full board and that all interest due at the time of such renewal or extension is collected in cash from the borrower.
An additional requirement of the written agreement was set forth in Paragraph 7 where it states:
As of the effective date of this Agreement, all new loans or lines of credit (including renewals and extensions of existing loans and lines of credit, but excluding additional advances under existing lines of credit) in
an amount of $200,000 or more shall require the prior approval of the Bank's board of directors or the directors' committee designated to approve and review loans, and all such loans or lines of credit shall be supported by a written summary that provides the board of directors or directors' committee with the information sufficient for it to make a prudent decision.
The Department seeks to impose discipline based upon alleged violations of the written agreement as set forth in the administrative complaint of May 15, 1992. Specifically, that administrative complaint contains allegations of violation of the written agreement associated with Paragraphs 5(a) and 7 directed to Bay Bank and the Christos for cease and desist and as a means of removal and prohibition against the Christos.
Concerning Paragraph 5(a), Bay Bank allowed a customer to post over drafts on his checking account, thus maintaining an overdraft position, commencing September 28, 1991, and ending November 18, 1991.
The allegations related to Paragraph 7 are discussed under the section in the recommended order detailing events about the letter of credit and a subsequent loan to JCJ Trust said to be made without board approval and proper documentation.
Beyond alleged violations of the compromise of the differences between the Department, Bay Bank and its directors embodied by the written agreement, the May 15, 1992 administrative complaint seeks to impose discipline against the Christos for findings made in the course of the March 31, 1991 examination. Those allegations are associated with the manner in which the Christos conducted themselves as officers and directors of Bay Bank based upon findings made through the examination of March 31, 1991 related to the Christos' fiduciary duties. These latter allegations are grounded upon the contention that the Christos were responsible for the unsafe and unsound practices discovered during the March 31, 1991 examination.
In response to problems with the payment of dividends Paragraph 2e of the written agreement stated:
2. (e) During the life of this Agreement, the bank shall not pay any dividends at any time it is in noncompliance with the capital and reserve requirement specified in paragraphs 2.(b), 3., 9., or Section 658.37, Florida Statutes. Prior to declaration of dividends, the board of directors will certify the bank's compliance with the cited sections and provide that certification to the Department.
Letters of Credit and Loans
On April 18, 1986, Bay Bank issued an unconditional/ irrevocable letter of credit to South Trust Bank of Alabama for JCJ Trust and a similar
letter of credit to South Trust Bank of Alabama for Christo, Jr. Both letters of credit were in the amount of $425,000.00. The letters of credit expired on February 25, 1989.
South Trust had required letters of credit as preconditions to granting the loans described on the stipulated facts herein.
At some point in time unsigned notes and security agreements were placed in the files of Bay Bank associated with the Christo, Jr., and JCJ Trust letters of credit. The terms of the notes and security agreements to address the contingency that South Trust Bank would draw upon the letters of credit were not identified. Also missing was an amount of collateral to secure repayment. Nonetheless, there appeared to be a commitment by Bay Bank to meet the contingency where South Trust Bank drew upon the letters of credit by Bay Bank by then offering to loan money to Christo, Jr. and JCJ Trust at an undisclosed rate. The Bay Bank records merely describe the collateral arrangement for such a contingent liability as "open".
Further letters of credit were requested by Christo, Jr. and JCJ Trust and issued by Bay Bank in the amount of $425,000.00 each to favor South Trust. The next letters of credit were issued on April 26, 1989. The duration of those letters of credit was until February 25, 1990.
The letters of credit of April 26, 1989, had been approved by action of the Bay Bank directors through a common certification for John Christo, Jr., and JCJ Trust in which Christo, Jr. and Christo, III, abstained from voting and other beneficiaries through the JCJ Trust who were directors to Bay Bank were absent.
When the letters of credit were issued on April 26, 1989, the loan line presentation for Christo, Jr. and JCJ Trust revealed that no collateral was required when issuing the letters of credit to favor South Trust Bank. Included with the documents under consideration by the directors when they decided to issue these letters of credit was customer profile information for Christo, Jr., a statement of financial condition dated December 31, 1988 for Christo, Jr., a balance sheet for JCJ Trust from December 31, 1988, a February 28, 1989 portfolio investment review for JCJ Trust, and a review of assets of JCJ Trust as of December 31, 1988.
On February 15, 1990, the Bay Bank directors again voted to approve lines of credit to favor South Trust Bank in amounts of $425,000.00 each at the request of Christo, Jr. and JCJ Trust. The common certification of approval shows that Christo, Jr. and Christo, III abstained, while Missey Christo and Phillip Christo beneficiaries under JCJ Trust and directors voted to approve the issuance of the letters of credit. Again the loan line presentations for Christo, Jr. and JCJ Trust reveal that collateral was not required in issuing the two letters of credit.
The terms of the duration of the letters of credit issued on February 25, 1990, ended on February 25, 1991. The beginning date for the letters of credit was February 25, 1990.
The Bay Bank records reveal a customer profile of John Christo, Jr., as associated with the letter of credit approved on February 15, 1990. The information concerning the customer profile is dated February 13, 1990.
On February 19, 1991, the Bay Bank directors were requested to and voted to issue letters of credit to favor South Trust Bank related to Christo, Jr. and JCJ Trust in the amount of $425,000.00 each. The common certification of approval shows that Christo, Jr. abstained from voting. Christo, III, voted in favor of the letters of credit as did Phillip Christo and Missey Christo, other directors and beneficiaries under JCJ Trust.
In association with the letters of credit on February 19, 1991, the loan line presentations for Christo, Jr. and JCJ Trust revealed that no collateral was provided. The act of approval involved a customer profile for Christo, Jr. from February 12, 1991. Also included was a balance sheet for JCJ Trust dated December 31, 1989, with notes to the financial statement.
The duration of the respective letters of credit was February 25, 1991 through February 25, 1992. A draft or drafts drawn on the respective letters of credit would be honored through March 25, 1992.
Each time Bay Bank through its directors voted to approve letters of credit to favor South Trust Bank at the request made by Christo, Jr. and JCJ Trust, the directors exercised distinct acts of discretion. The letters of credit issued in 1986, 1989, 1990 and 1991 did not establish terms that would entitle Christo, Jr. and JCJ Trust to an automatic renewal once a prior letter of credit expired. Each letter of credit had its own identifying number. The common features of the respective letters of credit were that they were irrevocable and transferable.
Commencing with the series of the letters of credit issued in 1989 and extending through the series in 1990 and 1991, the basis for drawing on the letters of credit was a statement from South Trust Bank that the amount for which the draft was drawn was representative of amounts due and payable by Christo, Jr. or JCJ Trust to South Trust Bank on loans extended from South Trust Bank to Christo, Jr. and JCJ Trust which were a minimum of 30 days past due.
The March 31, 1991 examination did not report that the actions by Christo, Jr., Christo, III, and other beneficiaries that the JCJ Trust who were directors had violated any laws or regulations in their conduct around the time the Bay Bank directors' made their February 19, 1991 decision to approve the letters of credit to favor South Trust Bank. Contentions of violations of laws or regulations concerning the conduct by Christo, Jr. and Christo, III first arose in the May 15, 1992 administrative complaint for cease and desist and removal and prohibition. The administrative complaint concerning inappropriate action by Christo, Jr. and Christo, III in their consideration of the extension of the letters of credit to South Trust Bank through the February 19, 1991 meeting of Bay Bank directors and the consequences of that decision is somewhat premised upon findings made by the FDIC in the November 18, 1991 examination as adopted by the Department, in which the FDIC reported violations of the Federal Reserve Act, 12 C.F.R. 215.4 (Regulation O), and Section 23A of the Federal Reserve Act, 12 U.S.C. s. 371(c). Related allegations about the letters of credit are based upon claims of breaches of fiduciary duties by the Christos.
A further discussion of the November 18, 1991, federal examination follows.
A notation was made in the March 31, 1991 examination concerning the Christo, Jr. letter of credit issued on February 25, 1991 in the amount of
$425,000.00 wherein it is described in the examination report as, "additionally,
a contingent liability of an unfunded, unsecured letter of credit to South Trust Bank of Alabama, N.A. to secure a $425,000.00 note there, also exist."
As of August 26, 1991, Christo, Jr. was past due on his obligation to South Trust Bank and South Trust Bank drew upon the letter of credit. The draw was in the amount of $425,115.00 which was paid from Bay Bank to South Trust Bank on August 26, 1991.
On September 3, 1991, Christo, Jr. signed a term disclosure note and security agreement in the amount of $425,000.00 at an annual interest rate of 10.736 percent. That interest rate was not more favorable than an ordinary customer of Bay Bank could have obtained. No security was required when Bay Bank made its September 3, 1991 loan to Christo, Jr.
On September 23, 1991, the JCJ Trust debt to South Trust Bank having been overdue for more than 30 days, South Trust Bank drew upon the letter of credit associated with JCJ Trust. The draw was in the amount of $425,000.00.
On October 2, 1991, a loan in the principle amount of $426,479.80 was made from Bay Bank to JCJ Trust, Christo, III as Trustee, to cover the draw that had been made by South Trust Bank against Bay Bank upon the letter of credit. The granting of this loan is alleged to be in violation of paragraph 7 to the written agreement. It is not a violation because the loan predates the effective date of the written agreement.
The maturity date on the loan made on October 2, 1991, was October 1, 1992. The annual percentage rate was 10.885, interest terms that were not more favorable to JCJ Trust than would be available to Bay Bank's ordinary customers.
In February, 1992, the Bay Bank directors took action to approve the loan that had been made to JCJ Trust on October 2, 1991. No indication is made in the credit file records of Bay Bank concerning the date upon which the Bay Bank directors may have approved the September 3, 1991 loan to Christo, Jr.
Prudent lending practices would not have justified the approval of the February 26, 1991, letters of credit requested by Christo, Jr. and JCJ Trust when taking into account credit information made available to the Bay Bank directors, especially when considering that the letters of credit were approved without provision of security from the requesting parties, Christo, Jr. and JCJ Trust. It can be inferred that Christo, Jr., Christo, III, and other directors were aware that the custom and practice within Bay Bank was to not extend letters of credit in excess of $100,000.00 without requiring provision of security in the way of mortgages on real estate, certificates of deposit or a combination of both forms of security.
At the time the February 19, 1991 decision was made to approve the letters of credit to South Bay at the request of Christo, Jr. and JCJ Trust, it can be inferred that Christo, Jr. and Christo, III, recognized that terms of credit should not have been granted to those requesting parties because the arrangements did not comport with terms available to other borrowers. This admonition included reference to more beneficial terms to "related interests" and "affiliates." JCJ Trust was a "related interest" and "an affiliate" at the time the decision was reached on February 19, 1991, to approve the letter of credit requested by JCJ Trust through Christo, III.
Christo, Jr. and Christo, III, as trustee for JCJ Trust had made no alternative arrangements to make Bay Bank whole in the event South Trust Bank
called on the letters of credit issued February 26, 1991. This refers to an arrangement separate and apart from the unsecured notes which were signed by Christo, Jr., and JCJ Trust in the person of Christo, III, following the draws by South Trust against the letters of credit, as a means of protecting Bay Bank at a time when the bank was troubled financially.
The February 19, 1991, decision to approve letters of credit requested by Christo, Jr. and JCJ Trust were not adequately supported with an underlying written justification contrary to existing bank policy and prudent banking practice.
As with the extension of the line of credit on February 26, 1991, the financial position of Christo, Jr. did not justify the unsecured loan that Bay Bank made to him on September 3, 1991. These arrangements were contrary to prudent banking practice. Moreover, it was violative of the Bay Bank loan policies and constituted more favorable treatment than an ordinary customer would receive. The loan was contrary to the policies in that the unsecured loan was not "supported by satisfactory balance sheet and income statement information with repayment from demonstrated cash flow or reasonably certain conversion of its assets."
Similar problems were in evidence concerning the loan made to JCJ trust on October 2, 1991. Prudent bankers would not have extended the credit to JCJ Trust, to include a lack of security, contrary to the credit opportunities a normal customer would have had.
The balance sheet available to support the JCJ loan was out of date. Moreover, the availability of funds to repay the loan according to the balance sheet was inadequate.
The problems with the Christo, Jr. September 3, 1991 loan concerned heavy debt obligations for notes payable to Bay Bank and South Trust and a questionable position concerning assets that were readily available to meet debt service at the time the decision was being reached to extend the September 3, 1991 credit. These problems were evident in the December 31, 1989 financial statement pertaining to Christo, Jr.
The principle asset available to JCJ Trust to meet the debt obligations contemplated by the October 2, 1991 loan were associated with Bay Bank stock. The Bay Savings Bank stock which was shown on the December 31, 1989 balance sheet for JCJ Trust had no value as support for the October 2, 1991 loan in that the savings bank had been declared insolvent by the Department and placed in conservatorship through the Resolution Trust Corporation in September, 1991. The Bay Bank stock was not a liquid asset to meet the loan obligation, there being no apparent market for its disposal as a means to obtain ready cash to meet the debt obligation envisioned by the note issued on October 2, 1991. Nor could dividends be anticipated as a means to meet the debt obligation, Bay Bank having been criticized in the March 31, 1991 examination for paying out dividends in a circumstance in which there was a need to infuse additional capital to bolster the loan loss reserve deficit and in view of the limiting features in the written agreement concerning payment of dividends. In this connection the true value of the Bay Bank stock when considering the methods employed for its valuation is uncertain during the period of time at which the loans were made to JCJ Trust and Christo, Jr., those dates being October 2, 1991 and September 3, 1991 respectively.
Although more recent financial statements not found in the credit files associated with the loans made on September 3, 1991, and October 2, 1991, to Christo, Jr. and JCJ Trust respectively was potentially available in making the decisions concerning those loans, those more recent financial statements do not depict a financial position by the borrowers that would justify the loans. Strictly considered, the existence of other financial statements had no pertinence at the time that the loans were made, because the loan and discount committee and the directors made their decisions based upon matters found within the credit file and it is their actions at the moment that warrant criticism.
After the letter of credit issued on February 25, 1991 to Christo, Jr. was drawn upon, the September 3, 1991 note for repayment by Christo, Jr., to Bay Bank was one without collateral and for which no payment was due until maturity on September 3, 1992 and about which the source of repayment was questionable. Therefore, it involved more than the normal risk of repayment.
After the letter of credit issued on February 25, 1991 to JCJ Trust was drawn upon, the October 2, 1991 note for repayment by JCJ Trust to Bay Bank as one without collateral and for which no payment was due until maturity on October 1, 1992 and about which the source of repayment was questionable. Therefore, it involved more than the normal risk of repayment.
Christo, III's claim that when he voted on February 19, 1991 to approve the JCJ Trust letter of credit that he did so through inadvertence is not persuasive. The protocol for considering this letter of credit was the same as had been the case in the past when the directors decided to provide a letter of credit for JCJ Trust. On those prior occasions Christo, III, had abstained from voting on the JCJ Trust on a single voting sheet for JCJ Trust and Christo, Jr. Nothing had changed in the voting sheet format for February 19, 1991. His claim that he was confused and mistakenly voted for the JCJ Trust letter of credit on February 19, 1991, because it also contained a reference to the Christo, Jr. letter of credit is not credible. The idea that his decision was inadvertent based upon some confusion is rejected in favor of the inference that his choice to vote was through negligence or intent.
FDIC Examination
The circumstances associated with the JCJ Trust February 25, 1991 letter of credit and the ensuing loan of October 2, 1991, that have been described form the basis for the FDIC through the November 18, 1991 report of examination to comment that violations of the Federal Reserve Act, 12 C.F.R., s.
215.4 and Section 23A of the Federal Reserve Act, 12 U.S.C. 371(c) had occurred.
In addition, the FDIC in its November 18, 1991 examination rated Bay Bank through the Camel rating system as an aggregate 4. As with the prior rating by the Department, Bay Bank was observed by the FDIC to be engaged in unsafe and unsound practices through acts of commission or omission by its management team and directors.
Although some changes can be seen through the findings made in the state examination performed on March 31, 1991 compared to the report of examination by the FDIC on November 18, 1991, Petitioner's Exhibit No. 6, they do not tend to substantially alter the impression about the persistent problems within the institution.
In particular, the FDIC directed criticism to the board of directors concerning the need for the directors to ensure that executive management was
cognizant of applicable laws and regulations pertaining to the bank's activities and the need to develop a system to affect and monitor compliance with those laws and regulations. This observation was made notwithstanding the recognition that members of the board of directors for Bay Bank would not necessarily be expected to have personal knowledge of those laws and regulations, but would need to make certain that the laws and regulations received high priority attention by the bank's everyday managers.
The FDIC also commented on a problem with maintaining an appropriate internal control system and an adequate means of auditing as evidenced by violations found within the November 18, 1991 report.
The board was reminded to evaluate the adequacy of the bank's loan watch-list as that device was calculated to assist in determining the proper allowance for loan losses, and from there establish a sufficient loan loss reserve.
The loan loss reserve was criticized. The regulators subsequent adjustment to the loan loss reserve calculation following the November 18, 1991 examination still revealed a deficiency in the loan loss reserve.
There was a continuing problem with asset quality showing a further deterioration from the March 31, 1991 state examination. This pertains to adversely classified loans in the categories of loss and doubtful loans, when taking into account the need to comply with the written agreement in charging off 100 percent of loss and 50 percent of doubtful. Among the adversely classified loans which were mentioned in the FDIC examination was the October 2, 1991 loan to JCJ Trust.
The November 18, 1991 report reminded Bay Bank to dispose of other real estate at the earliest favorable opportunity.
The FDIC examination pointed out the weakness in the bank's capital position due to large loan losses.
When the examination was conducted on November 18, 1991, the liquidity ratio was found to be unsatisfactory.
Fiduciary Duties
Generally, Christo, Jr. and Christo, III, were sufficiently apprised of the practices which are complained of and proven here to be held accountable for their respective actions or inactions as bank officers.
More specifically, Christo, Jr., and Christo, III, were knowledgeable concerning the respective financial positions of Christo, Jr., and JCJ Trust associated with the letters of credit approved on February 25, 1991, for Christo, Jr., in his personal capacity and Christo, III, as Trustee for JCJ Trust.
The Christos knew or should have known about the Bay Bank loan policies for issuing letters of credit on February 25, 1991. The basis for imputing this knowledge or need for knowledge is premised upon the fact that Christo, Jr., was then CEO and Christo, III, was then president of Bay Bank.
Given their positions as officers the Christos knew or should have known that the letters of credit that were issued on February 25, 1991, were by
terms dissimilar to those afforded the ordinary bank customer when receiving a letter of credit.
Similarly, the Christos knew or should have known that the loans that were made to Christo, Jr., and JCJ Trust on September 3, 1991 and October 2, 1991 respectively were pursuant to arrangements that were not otherwise available to an ordinary bank customer.
Another reason for holding the Christos to knowledge of relevant requirements for proper practices and conduct in bank affairs is based upon the fact that Christo, Jr., had been a banker, and for the most part, a chief executive of a bank, for a period approximating 30 years at the time the decisions were made concerning the letters of credit and loans once the letters of credit were drawn upon. In a related capacity Christo, III, has been a national bank examiner and has worked in banking for a period of approximately
25 years to include 10 years service with Bay Bank as an executive officer.
Notwithstanding their background and knowledge the Christos allowed conditions to arise in association with the issuance of the two letters of credit and the loans that were made following draws, in contravention of internal loan policies, prudent banking practices and laws and regulations. It is to be expected that the Christos should have reminded the other directors that internal bank policies and laws and regulations would not allow more favorable treatment for Christo, Jr., and JCJ Trust concerning the issuance of letters of credit in February of 1991 and loans in September and October, 1991, to pay back the draws, especially when taking into account that security was not required for the transactions in question.
The need for the other directors who voted to issue the letters of credit and to approve loans following the draws, to conform to acceptable banking practices in their respective positions as directors, does not excuse the Christos from their affirmative duty to remind the other directors to conform to internal policies and laws and regulations concerning equal treatment of other persons and bank officials when establishing letters of credit and making loans.
The Christos failed to properly exercise their fiduciary duties when action was taken concerning the letters of credit and subsequent loans following the draws. It was not enough for Christo, Jr., to abstain from participating in the decision to approve his letter of credit and that for JCJ Trust. It was even more inappropriate for Christo, III, to affirmatively vote in favor of the letters of credit for JCJ Trust and Christo, Jr.
The arrangements made for the benefit of Christo, Jr., and JCJ Trust left Bay Bank exposed for $850,000.00 in disbursements without security should the letters of credit be drawn upon and that arrangement continued following the decision to make loans to Christo, Jr., and JCJ Trust in a related amount after the letters of credit were drawn upon.
The Christos as the principal managers of the bank when the examinations were conducted were shown through the findings made in the examination reports to have breached their fiduciary duties.
By failing to meet their responsibilities concerning the findings made in the two examinations and related to the Christo, Jr., and JCJ Trust letters of credit and loans, the Christos engaged in unsafe and unsound practices whose consequences created the likelihood of abnormal risk or loss,
insolvency or dissipation of assets which seriously prejudice the interests of Bay Bank and its depositors when taking into account the overall condition of Bay Bank at the time at which the letters of credit were issued and the loans made following the draws.
History of Regulatory Correction
The external history of action by the Department to correct problems within Bay Bank is constituted of the written agreement that has been described.
Consistent Agency Practices
As alluded to before, the treatment given other institutions which the Department regulates when considering the propriety of assessing the costs of examination and supervision does not point out inconsistent agency practices.
Having reviewed the evidence concerning inconsistent agency practice in removal and prohibition of individuals from participating in banking in Florida, while the means to affect removal from an institution may not have always been the same, the outcome anticipated by that process is sufficiently consistent and the factual differences between cases do not lead to a finding that the agency has acted inconsistently when comparing its effort to remove the Christos with other removal actions described at hearing.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action pursuant to Section 120.57(1), Florida Statutes (1992 Supp.).
Section 120.57(1)(b)15, Florida Statutes (1992 Supp.)
The FDIC manual, the state Examination Procedures Manual and Management Evaluation Guidelines, together with the use of aggregate Camel ratings of 4 or 5, in association with the right to assess costs of examination and supervision and possible late payments and administrative fines and other administrative relief, particularly as a means to decide whether an institution is engaged in unsafe and unsound practices, constitute rules by definition set forth at Section 120.52(16), Florida Statutes (1992 Supp.)
The Department is justified in using the unpromulgated rules in the action it has taken here. The Respondents had been sufficiently apprised that the Department would employ these tools to measure performance at Bay Bank. Based upon the longstanding practice in using these means to critique the institution's performance, Respondents had gained sufficient acquaintanceship with the process through the events that took place in this examination as they mirrored prior examinations.
The Department need not have provided the manuals nor established rules concerning the relationship between aggregate Camel ratings of 4 or 5 and the right to take administrative action before bringing the administrative complaints. The factual findings that underlie the component scores in the Camel rating process set forth unsafe and unsound practices and directly alert the accused about the Department's concerns and those of the FDIC as adopted by the Department. Those concerns set forth in the examination reports point out practices or conduct that would be contrary to generally accepted standards of
practice and conduct pertaining to Bay Bank, which are so grave that they would create likelihood of abnormal risks or loss, insolvency, or dissipation of assets or otherwise seriously prejudice the interest of Bay Bank and its depositors. This description is the definition of unsafe or unsound practice or conduct set out in Section 655.005, Florida Statutes (1991).
The concept of unsafe and unsound practices and its significance carry forth to Section 655.045(1), Florida Statutes (1991), when describing the opportunity to recover costs of examination and supervision, fees for late payment and administrative fines for intentional late payment. The concept of unsafe and unsound practices is also spoken to in the provision which allows the Department to issue cease and desist orders consistent with Section 655.033(1)(a), Florida Statutes. Finally, the concept of unsafe and unsound practices is set at Section 655.037, Florida Statutes (1991), when describing the opportunity to remove officers, directors, and others, and to prohibit the further participation by that person in the affairs of the given institution or any other financial institution regulated by the Department.
The de novo review conducted of the use of the manuals and the use of Camel ratings as a means of seeking costs of examination and other administrative relief pertaining to unsafe and unsound practices or conduct, does not evidence agency action that enlarges, modifies, or contravenes Chapter 655, Florida Statutes (1991) or which exceeds delegated legislative authority. These statements or unpromulgated rules have been affirmatively demonstrated to be within the scope of delegated legislative authority.
Costs of Examination and Supervision, Late Payment Penalty and Intentional
Late Payment Administrative Fine
Section 655.045(1), Florida Statutes (1991), states in pertinent part:
The department may recover the costs of examination and supervision of a financial institution that is determined by the department to be engaged in an unsafe or unsound practice.
For the purposes of this section, "costs" means the salary and travel expenses directly attributable to the field staff examining the financial institution and the travel expenses of any supervisory staff required as a result of examination findings.
The department may require an audit of any financial institution by an independent certified public accountant approved by the department whenever the department, after conducting an examination of such financial institution or after accepting an examination of such financial institution by the appropriate federal regulatory agency, determines that such an audit is necessary in order to ascertain the condition of the financial institution. The cost of such audit shall be paid by the financial institution.
The mailing of any fees incurred in accordance with this subsection shall be postmarked no later than 30 days after the date of receipt of a notice of such fees due. The department may levy a late payment penalty of up to $100 per day or part thereof that a fee payment is overdue, unless it is excused for good cause. However, for intentional late payment of a fee, the department shall levy an administrative fine of up to $1,000 per day for each day the fee is overdue. All late payment penalties collected under this subsection shall be paid to the Financial Institutions' Regulatory Trust Fund of the department.
The Department has proven that the amount of the cost of examination and supervision was $67,494.20. It has proven that it is entitled to collect those costs of examination and supervision based upon the fact that the March 31, 1991 examination which it conducted revealed that Bay Bank was engaged in unsafe and unsound practices.
In accordance with Section 655.021, Florida Statutes (1991), as reenacted through Section 655.031, Florida Statutes, (1992 Supp.), the assessment of the costs of examination and supervision are found to be appropriate.
The Department is not entitled to collect a late payment penalty of
$100.00 per day commencing November 5, 1991 and an intentional late payment administrative fine of $1,000.00 a day commencing December 16, 1991.
The initial free-form contact which the Department had with Bay Bank on July 31, 1991, and upon subsequent dates prior to issuance of the administrative complaint on March 11, 1992, to recover costs of examination, late fees and administrative fines were free-form. Those discussions were not fruitful. This lead the Department to issue its administrative complaint which for the first time apprised Bay Bank concerning its rights to administrative process pursuant to Section 120.57, Florida Statutes. When formally apprised, Bay Bank contested the material facts associated with the Department's claim of unsafe and unsound practices. Consequently the costs of examination and supervision in question do not become due until a final order is entered following the recommendation set forth here.
Without advising Bay Bank concerning its administrative rights pursuant to Section 120.57, Florida Statutes, the Department had no legal authority to invoice Bay Bank on July 31, 1991 and expect to receive payment for costs of examination and supervision postmarked no later than the date of receipt of that notice of such fees being allegedly due. Nor could it expect to be entitled to those costs of examination and supervision upon dates subsequent in which contacts were made with Bay Bank in pursuing negotiations to try to gain payment for costs of examination and supervision.
The Department was not misled by Bay Bank in the negotiations that took place between July 31, 1991 and March 12, 1992. During those negotiations Bay Bank never agreed that it had engaged in unsafe and unsound practices as allegedly found in the March 31, 1991 examination, thus entitling the Department to collect the costs of examination and supervision.
There being no entitlement to costs of examination and fees until a final order is entered to that affect, there can be no entitlement to collect a late payment penalty of $100.00 per day commencing November 5, 1991, and intentional late payment administrative payment fine of $1,000.00 per day commencing December 16, 1991. See McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977); Home Associates v. Department of Business Regulation, 504 So.2d 1301 (Fla. 1st DCA 1987) and Hatchineha, Inc. v. State of Florida, Department of Environmental Regulation, et al., 580 So.2d 267 (Fla. 1st DCA 1991).
Cease and Desist
When the Department entered into its written agreement to address the concerns found by the Department in the March 31, 1991 examination it abandoned a cease and desist action pursuant to Section 655.033, Florida Statutes.
Based upon the Department's forbearance from initiating administrative litigation in accordance with Section 655.033, Florida Statutes, Bay Bank and its directors agreed to conform to the expectations set forth in the written agreement. Future opportunities to seek a cease and desist order for practices observed in the March 31, 1991 examination became embodied in the expectations incumbent upon Bay Bank and its directors as announced in the written agreement.
This outcome did not prohibit the Department from seeking a cease and desist order for conduct not discussed in the examination report associated with violations of the written agreement and other unrelated agreements or orders entered by the Department against Bay Bank and/or other violations of law outside the findings made in the March 31, 1991 report of examination.
With the previously described limitations in mind and consistent with Section 655.033, Florida Statutes (1991), and upon the facts found, the Department may enter an order requiring Bay Bank, it officers, directors, committee members, employees and other participating persons to cease and desist unsafe and unsound practices, and cease violating laws related to the operation of the financial institution which shall be discussed subsequently. This determination takes into account the opportunities for this choice considered in accordance with Section 655.021, Florida Statutes (1991), as reenacted through Section 655.031, Florida Statutes (1992 Supp.).
Breach of Written Agreement
Paragraph 5(a) to the written agreement was violated when the borrower classified as doubtful or uncollected was allowed to maintain an overdraft position in the manner described in the fact finding. A breach of paragraph 7 to the written agreement based upon the making of a loan on October 2, 1991, to JCJ Trust to cover the South Trust draw has not been proven.
A breach has not been proven in that the effective date of the written agreement is October 14, 1991. The date upon which Bay Bank and its directors were provided with a signed copy of the written agreement.
It was not proven that the written agreement was issued on September 29, 1991. Under the circumstances, the written agreement could not have been effective before the October 7, 1991 signing of the stipulation to enter into the written agreement by representatives of the Department and the directors.
The October 14, 1991 letter of transmittal with the enclosed written agreement executed by the Comptroller followed that event and constituted issuance of the written agreement. The Department docketed the written agreement on that date, thus memorializing the event.
The stipulation to enter the written agreement as well as the written agreement itself had to have been signed by the board of directors before the Comptroller could issue the written agreement. The last persons among the directors had signed the written agreement on October 4, 1991, as transmitted to the Department on that date. Then came the signing of the stipulation to enter into the written agreement.
The stipulation to entered into a written agreement and the written agreement itself contemplated that both documents would be signed by the directors on the same date, failing which the last document as executed by the directors on October 7, 1991 forms the basis for the Department to issue the written agreement and make the written agreement effective.
The September 17, 1991 action by the board of directors in which they resolved to enter into the written agreement did not change the date upon which the written agreement became effective in that it did not constitute issuance of the written agreement by the Department.
The contention by the Department's correspondence claiming that the effective date of the written agreement was September 29, 1991 is not controlling absent further written agreement by Bay Bank and the directors acknowledging that September 29, 1991 is the effective date. By their silence Bay Bank and the directors have not acquiesced in the claim that the effective date is September 29, 1991.
Removal and Prohibition
Section 655.037(1), Florida Statutes (1991), allows the removal of and restriction and prohibition from participating in banking directed to Christo, Jr., and Christo, III, if it has been shown that they engaged in unsafe or unsound practices, willful violations of laws relating to financial institutions, willful breaches of written agreements with the Department, and acts of commission or omission or practices which constitute breach of trust or breaches of fiduciary duty.
In order to remove the Christos or prohibit their participation at Bay Bank or other financial institutions that action must be consistent with Section 655.037(3), Florida Statutes (1991) which states:
If no hearing is requested within the time allowed by s. 120.57, or if a hearing is held and the department finds that any of the charges in the complaint are true and that the financial institution has suffered or will likely suffer substantial loss or other substantial damage or that the interests of the depositors, members, or shareholders could be seriously prejudiced by reason of such violation or practice or breach of fiduciary duty or that the officer, director, committee member, employee, or other person participating in the conduct of the affairs
of the financial institution has received financial gain by reason of such violation or practice or breach of fiduciary duty, and that such violation or practice or breach of fiduciary duty is one involving personal dishonesty on the part of such officer, director, committee member, employee, or other person participating in the conduct of the affairs of the financial institution, or a willful or continuing disregard for the safety or soundness of the financial institution, the department may enter an order removing the officer, director, committee member, employee, or other person participating in the conduct of the affairs of the financial institution or restricting or prohibiting participation by such person in the affairs of that particular institution or any other financial institution.
The decisions recommended in disciplining the Christos have taken these requirements into account.
The Department did not seek removal of Christo, Jr., and Christo, III, as officers based upon its findings made in the March 31, 1991 examination and through the settlement process engaged in which led to the written agreement. Left unresolved was the Christos accountability for unsafe and unsound practices found during the examination from the perspective that they were officers in charge of the bank at that time. The unsafe and unsound practices discovered in that examination are matters about which the Christos are responsible. Their acts of commission and omission as ranking senior officers within the institution, with longstanding experience, constituted breaches of fiduciary duty during the examination.
The March 31, 1991 state examination did not describe violations of the Federal Reserve Act, 12 C.F.R. s. 215.4, (Regulation O) and Section 23A of the Federal Reserve Act, 12 U.S.C. s. 371(c). Those violations were in evidence at the time the March 31, 1991 examination was performed. The letters of credit issued on February 25, 1991, to Christo, Jr., and JCJ Trust were in violation of Regulation O in that they constituted extensions of credit to an officer, Christo, III, and to a related interest, JCJ Trust, as related to Christo, III, officer, under terms different than those made available to persons other than insiders. These were arrangements that did not take into account nor properly examine the normal risk of payment of a note that might be issued following draws on the letters of credit and without the requirement for collateral. At the time the letters of credit were issued on February 25, 1991, the JCJ Trust letter of credit constituted an extension of credit to an affiliate within the meaning of Section 23A and without the required security called for by Section 23A.
In addition Christo, III, violated Regulation O by voting in favor of the extension of the letter of credit to JCJ Trust on February 19, 1991.
Regulation O and Section 23A are made applicable to all Respondents through Section 18(j) of the Federal Deposit Insurance Act.
The October 2, 1991 loan that was made to JCJ Trust following the draw constituted repeat violations of Regulation O and Section 23A similar to the nature of those violations described immediately before, with the exception that Christo, III, did not vote in favor of the October 2, 1991 loan.
Christo, III, through his vote for extending the letter of credit to JCJ Trust, the vote taken on February 19, 1991 and both Christos by their failure to actively insist that the other directors comply with Regulation O and Section 23A in extending lines of credit in February 1991 and in making loans following draws against those lines of credit, loans which were made on September 3, 1991 and October 2, 1991, acted willfully in that they were held to know the requirements of Regulation O and Section 23A as they form the basis for part of the administrative complaint for cease and desist and removal.
Decisions by the Christos associated with the lines of credit and loans to Christo, Jr., and JCJ Trust constitute proof that they acted inconsistently when taking to account internal bank policies and breached their fiduciary responsibilities.
Christo, Jr., and Christo, III, were responsible for the unsafe and unsound conditions observed in the November 18, 1991 examination performed by the FDIC, as well as further breaches of fiduciary responsibilities.
As previously concluded the written agreement was breached. However, the Christos should not be held accountable for this isolated instance of a breach of written agreement as a means to remove them from their positions or prohibit their participation in the affairs of Bay Bank or other financial institutions. This single circumstance standing alone was not shown to be within their knowledge or should it be anticipated to be within their knowledge.
Pursuant to Section 655.021, Florida Statutes (1991) reenacted Section 655.031 Florida Statutes (1992 Supp.), in deciding the penalty to be imposed against the Christos, size of the financial resources of the Christos need not be examined in that no monetary penalties are contemplated by the administrative complaint. Their good faith and gravity of the violations, together with the history of discipline should be and have been examined.
The Christos have not exercised good faith in carrying out their charge as officers and directors. The violations of Section 655.037, Florida Statutes (1991) are grave.
There is no history of previous violations.
Reference is made to the January 31, 1989 resolution of the Bay Bank directors where the bank set out a plan of correction in response to deficiencies that had been observed in previous examinations conducted by the FDIC and the Department. The March 31, 1991 examination discovered material noncompliance with the January 31, 1989 board resolution for which the Christos are held accountable.
Inconsistent Agency Action
The respondents have failed to show that the Department has acted inconsistently in proceeding against them for costs of examination and supervision, for orders to cease and desist and for removal and prohibition. See Martin Memorial Hospital Association v. Department of Health and Rehabilitative Services, 584 So.2d 39 (Fla. 4th DCA 1991), review denied. 595
So.2d 556 (Fla. 1992); North Miami General Hospital, Inc. v. Offices of Community Medical Facilities, 355 So.2d 1272 (Fla. 1st DCA 1978), and E. M. Watkins Company, Inc. v. Board of Regents, 414 So.2d 583 (Fla. 1st DCA) review denied, 421 So.2d 67 (Fla. 1982).
Based upon the findings of facts and the conclusions of law, it is, RECOMMENDED:
That a final order be issued which assesses the cost of examination and supervision for the March 31, 1991 examination in the amount $67,494.20;
That denies the imposition of a levy for late payment of $100.00 per day commencing November 5, 1991 and beyond;
That denies the imposition of an administrative fine for intentional late payment in the amount of $1,000.00 per day commencing December 16, 1991 and beyond;
That orders Bay Bank, its officers, directors, or other persons participating in the conduct of the affairs of Bay Bank, to cease and desist from engaging in practices which would allow Christo, Jr., and Christo, III, to obtain credit from Bay Bank in contravention of laws and regulations, and which breach the October 14, 1991 written agreement and Bay Bank internal policies;
That prohibits Christo, Jr., from participating in Bay Bank or any other financial institution regulated by the Department as an officer or in a similar position for Bay Bank or any other financial institution or becoming a director in any other financial institution and that restricts Christo, Jr., in his directorship at Bay Bank from participating in any decision to select or dismiss Bay Bank officers or directors;
That prohibits Christo, III, from participating in Bay Bank or any other financial institution regulated by the Department as an officer or in a similar position for Bay Bank or any other financial institution or becoming a director in any other financial institution and that restricts Christo, III, in his directorship at Bay Bank from participating in any decision to select or dismiss Bay Bank officers or directors;
DONE and ENTERED this 1st day of February, 1994, in Tallahassee, Florida.
CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 1st day of February, 1994.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-2455 and 92-3744
The following discussion is given concerning the proposed facts submitted by the parties:
Petitioner's Facts:
Paragraphs 1 through 26 are subordinate to facts found. Paragraphs 27 and 28 constitute conclusions of law.
Paragraphs 29 through 81 are subordinate to facts found. Paragraph 82 constitutes legal argument.
Paragraphs 83 through 85 are subordinate to facts found. Paragraph 86 is not relevant.
Paragraphs 87 through 123 are subordinate to facts found. Paragraph 124 is rejected.
Paragraphs 125 through 136 are subordinate to facts found. Paragraph 137 constitutes legal argument.
Paragraphs 138 through 145 are subordinate to facts found. Paragraph 146 constitutes a conclusion of law.
Paragraph 147 is subordinate to facts found. Paragraph 148 constitutes a conclusion of law. Paragraphs 149 through 152 constitute legal argument.
Paragraph 153 through 170 are subordinate to facts found. Paragraphs 171 through 181 constitute legal argument.
Paragraph 182 through 201 are subordinate to facts found. Respondent's Facts:
Paragraphs 4 through 7 with the exception of the latter sentences found within subparagraphs 13 through 15 to paragraph 7 are subordinate to facts found.
Those latter sentences within the subparagraphs are not relevant. Paragraphs 8 through 10 are subordinate to facts found.
Paragraph 11 is subordinate to facts found with the exception that subparagraph
1 in its suggestion that the Department does not adequately explain its assignment of an aggregate score is rejected, as is the contention at subparagraph 9 that Camel rating may be changed at a "whim" and that a change was made to a component Camel rating in the March 31, 1991 examination without justification for that change.
Paragraph 12 is subordinate to facts found. Paragraph 13 is rejected.
Paragraph 14 is not relevant.
Paragraphs 15 through 30 are subordinate to facts found.
Paragraph 31 as it attempts to defend the accusations in the administrative complaint is rejected.
Paragraph 32 is subordinate to facts found. Paragraphs 33 through 36 are not relevant. Paragraph 37 is subordinate to facts found. Paragraph 38 is rejected.
Paragraph 39 is not relevant. Paragraph 40 is rejected.
Paragraph 41 is not relevant.
Paragraph 42 is subordinate to facts found. Paragraph 43 is not relevant.
Paragraphs 44 through 48 are subordinate to facts found, except that the subparts to Paragraph 48 constitute legal argument.
Paragraph 49 is not relevant.
The first sentence to Paragraph 50 is not relevant. The second sentence is rejected.
Paragraphs 51 and 52 are rejected. Paragraph 53 constitutes legal argument. Paragraphs 51 and 52 are rejected.
Paragraph 53 constitutes legal argument. Paragraphs 54 through 56 are not relevant. Paragraphs 57 and 58 are rejected.
Paragraph 59 is not relevant.
Paragraph 60 does not form a defense to the accusations. Paragraph 61 and 62 are rejected.
COPIES FURNISHED:
Alan C. Sundberg, Esquire Robert Pass, Esquire
E. Kelley Bittick, Jr., Esquire Carlton, Fields, Ward, Emmanuel
Smith & Cutler, P.A.
500 Barnett Bank Building
215 South Monroe Street Tallahassee, Florida 32301
William G. Reeves, General Counsel Albert T. Gimble, Chief Banking Counsel Department of Banking and Finance
Suite 1302, The Capitol Tallahassee, Florida 32399-0350
William A. Friedlander, Esquire Raymond B. Vickers, Esquire Craig S. Kiser, Esquire
424 West Call Street Tallahassee, Florida 32301
Gerald Lewis, Comptroller Department of Banking and Finance The Capitol, Plaza Level Tallahassee, Florida 32399-0350
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE
DIVISION OF BANKING
DEPARTMENT OF BANKING AND FINANCE,
Petitioner,
vs. DOAH Case No. 92-2455
BAY BANK & TRUST COMPANY,
Respondent.
/ Administrative Proceeding DEPARTMENT OF BANKING AND No. 3042-B
FINANCE, STATE OF FLORIDA,
Complainant,
vs. DOAH Case No. 92-3744
BAY BANK AND TRUST COMPANY, JOHN CHRISTO, JR., and
JOHN CHRISTO, III,
Respondents.
/
FINAL ORDER
THIS CAUSE came before the undersigned as Head of the Department of Banking and Finance, Division of Banking, (hereinafter "Department" or "Agency Head") for the purpose of issuing a final agency order. The hearing officer, Charles
Adams, assigned by the Division of Administrative Hearings (DOAH) in the above-styled consolidated cases submitted on February 1, 1994 a Recommended Order ("Recommended Order") to the Department of Banking and Finance ("DBF" or "Petitioners"), a copy of which is attached hereto as attachment "A". After the parties filed three separate joint motions to extend filing dates of exceptions, responses, and proposed final orders, which motions were granted, certain of the parties to this case have filed exceptions to the Recommended Order. 1/ DBF timely filed its exceptions to the Recommended Order on May 16, 1994, a copy of which is attached hereto as attachment "B". John Christo, Jr. and John Christo, III ("Christos" or "Respondents") also filed their exceptions to the Recommended Order on that date, a copy of which is attached hereto as attachment "C". DBF and Bay Bank have, by previous Agreement and Final Order to Cease and Desist docketed April 19, 1994, resolved their respective differences.
The following findings and conclusions are made upon review of the Recommended Order, the argument of parties, and after a review of the complete record in this case.
RULINGS ON EXCEPTIONS
RULING ON EXCEPTIONS FILED BY THE CHRISTOS
Respondents, Christos, on May 16, 1994 filed consecutively numbered exceptions to findings of fact and conclusions of law contained in the Hearing Officer's Recommended Order. The Department's rulings follow: 2/
Exceptions as to Findings of Fact
The Respondents, in paragraph numbered 1 of their exceptions, make a generalized statement regarding an alleged use of unpromulgated rules to establish violations. Respondent's have not linked this exception to a specific finding of fact or legal conclusion in the Recommended Order and it is therefore rejected as unintelligible, immaterial, and irrelevant.
The Respondents except to paragraph 105 of the Recommended Order. Respondents, in their exception, inaccurately state the finding of the hearing officer. This forms the first basis for its rejection. In addition, in their exception, the respondents also reargue the evidence. In Heifetz v. Department of Business Regulation, 475 So.2nd 1277 (Fla. 1st DCA 1985), the First District Court of Appeals explained the respective roles of hearing officers and state agencies in deciding factual issues, as follows:
Factual issues susceptible of ordinary methods of proof that are not infused with policy considerations are the prerogative of the hearing officer as the finder of fact.
McDonald v. Department of Banking and Finance
346 So.2nd 569 (Fla. 1st DCA 1977). It is the hearing officer' function to consider
all the evidence presented, resolve conflicts, judge credibility of witnesses, draw permissible inferences from the evidence, and reach ultimate findings of fact based on competent substantial evidence. State Beverage Department v. Renal, Inc. 115
So.2nd 566 (Fla. 3rd DCA 1959) If, as if often the case, the evidence presented supports two inconsistent findings, it is the hearing officer's role to decide the issue one way of the other. The agency may not reject the hearing officer's finding unless there is no competent substantial evidence from which the finding could reasonably be inferred. The agency is not authorized to weigh the evidence presented, judge credibility of witnesses, or otherwise interpret the evidence to fits its desired ultimate conclusion....
Id. at 1281.
Having reviewed the transcript of the hearing, the exhibits and pleadings in this matter, it cannot be determined that there is no competent substantial evidence to support the Hearing Officer's finding as it is set forth in
paragraph 105 of the Recommended Order. For these additional reasons, the Respondents' exception is rejected.
The Respondents' third exception fails to cite to a specific paragraph in the Recommended Order. Assumed, this exception refers to paragraph 105, which, as previously noted, does not find what the Respondents argue in their second exception. In addition, the Respondent's mix questions of law and fact in their exception to a finding of fact. For the same reasons set forth in the ruling on exception number 2, supra, the Respondents' third exception is rejected.
The Respondents' fourth exception is an unconnected generalized statement of law regarding the burden of proof. No specific factual finding is challenged. This exception, with no linkage to a specific Finding(s) of Fact, is unintelligible and therefore rejected as immaterial and irrelevant.
The Respondents' fifth exception does not cite to a specific factual finding in the Recommended Order; instead, bit contains a generalized statement arguing that the Hearing Officer refused to consider alleged evidence that the bank incurred no losses as a result of the alleged violations. The Respondents' interpretation of Section 655.037, Florida Statutes, does not comport with the language of that statute which provides that such violative conduct created a likelihood of loss, or other substantial damage or that the interests of depositors, members or shareholders could be seriously prejudiced by reason of such violation. Competent, substantial evidence exists in the record that the unsafe and unsound practices and other cited violations created a sufficient likelihood of loss or substantial damage or could seriously prejudice the interests of depositors or shareholders. (see T. 321, 556-58, 559-62, 892-96, 905-08, 922, 927). For the foregoing reasons, this exception is rejected. See also Heifetz, supra.
The Respondents' sixth exception contains a generalized statement of law, without any specific reference to a particular finding of fact. This exception is rejected to the extent it fails to specify what finding it is excepting to. In addition, contrary to Respondents' assertions, the matter was alleged in the Department's Administrative Complaint (See Paragraphs 34 - 35, Exhibit RIB)
The Respondents' seventh exception contains a generalized statement of law without referencing a specific finding of fact. To the extent such a reference is lacking, this exception is rejected as unintelligible and therefore immaterial and irrelevant. To the extent Respondents argue the matter therein was not alleged in the complaint, the exception is rejected as contrary to the facts (See Administrative Complaint, Exhibit RIB, Paragraphs 17 - 32 and 35)
The Respondents' exception number eight fails to specifically cite to a numbered paragraph in the Recommended Order. The exception instead contains a generalized statement mixing legal argument and factual dispute. To the extent this exception attempts to reargue the evidence, it is rejected. See Heifetz, supra. To the extent this exception misquotes section 655.037, Florida Statutes, it is likewise rejected for the same reasons as articulated in ruling on exception number 5, above.
The Respondents' ninth exception attacks the constitutionality of Section 655.045, Florida Statutes. This exception is rejected insofar as administrative agencies are not the appropriate forum to determine questions of
constitutional import. See, e.g. Myers v. Hawkins, 362 So.2nd 926, 928 (Fla. 1978).
The Respondents' tenth exception paraphrases the finding in paragraph
43 of the Recommended Order that it was appropriate on March 31, 1991 for the Department to direct Bay Bank not to pay dividends. The exception contends that the bank was not prohibited from paying dividends in the March, 1991 exam report. Respondents' exception inaccurately paraphrases the hearing officer's specific finding in paragraph 43. In addition, Respondents fail to link the relevancy of its exception to the overall case. For these reasons, this exception is rejected.
The Respondents' eleventh exception fails to cite to a specific numbered paragraph of the Recommended Order. In their exception, respondents argue that "a finding of Bay Bank policy requiring collateral for letters of credit exceeding $100,000.00 is not supported by any evidence in the record." The Respondents apparently have inaccurately stated the hearing officer's finding, which assumedly is found in paragraph 102 of the Recommended Order. The hearing officer concluded that a "custom and practice" existed at the bank requiring such security. There is competent substantial evidence in the record to support this finding. (See e.g., Plaintiffs Exhibit 32; T. 1480-81). For these reasons, this exception is rejected. See Heifetz, supra.
Respondents' twelfth exception fails to cite to a specific section, paragraph, or sentence of the Recommended Order; instead, it contains a generalized statement regarding violations being resolved through a "written agreement." Reviewing the Recommended Order in toto, the hearing officer clearly evaluated and weighed the evidence surrounding the stipulation and the written agreement between the Bank and DBF (see paragraphs 54 through 78 of the Recommended Order). The contention that the written agreement operated to waive (or merge, for that matter) any claims the Department has against the Christos is rejected. It is noteworthy that the stipulation entered into in connection with the written agreement had a proviso (section 7) wherein the Department retained its rights to "take such further action... against Bay Bank and the directors as the Department deems necessary and appropriate... to prevent any violation of law relating to financial institutions." In addition, the Respondents assert that the written agreement never became enforceable due to lack of proper execution by the agency head. This issue does not appear to have been raised by the Respondents before the hearing officer. The Respondents twelfth exception is therefore rejected as contrary to the law and the evidence.
The Respondents' thirteenth exception argues with an evidentiary matter, contending the hearing officer failed to consider certain "evidence". The alleged "failure" on the hearing officer's part is apparently a supposition of the respondents. This exception, as others before it, attempts to have the agency reweigh evidence which the Hearing Officer has previously evaluated in reaching his ultimate findings of fact. This is the Hearing Officer's function. See Heifetz, supra. The hearing officer's evaluation regarding the letters of credit is accepted. For these reasons, this exception is rejected.
The Respondents' fourteenth exception, as in their thirteenth exception, argues that the Hearing officer failed to consider certain evidence. This appears to be additional supposition by the Respondents. It is the hearing officer's function to weigh the evidence for the purpose of rendering ultimate findings of fact. See Heifetz, supra. Upon reviewing the record and the hearing officer's analysis and findings as to the letters of credit in
paragraphs 79 through 114 of the Recommended Order and concurring with his reasoning and findings and adopting same, this exception is therefore rejected.
In their fifteenth exception, the Respondents oversimplify the hearing officer's findings in paragraph 106 of the Recommended Order. The hearing officer, in that paragraph, did not merely focus on the unsecured nature of the February 26, 1991 extension of the line of credit; in addition, the hearing officer noted that the financial condition of Christo, Jr. did not justify the unsecured loan and that the loan was contrary to the policies of Bay Bank in that the unsecured loan was not "supported by satisfactory balance sheet and income statement information with repayment from demonstrated cash flow or reasonably certain conversion of its assets." In addition to inaccurately characterizing the hearing officer's findings, the respondents argue with the evidence and argue factors which they deem mitigating. As noted previously, it is the hearing officer's function to weigh the relevant evidence for the purpose of reaching ultimate findings of fact. Competent, substantial evidence exists in the record to support the hearing officer's findings (see T. 564-85; in particular, 568, lines 16-25; 569, lines 1-2; 573, lines 8-25; 574, lines 1-3; 579; exhibit P42, pg. 20.). See also Heifetz, supra. Lastly, contrary to the Respondents' assertions in their exception, the hearing officer noted in paragraph 137 of the Recommended Order that the Christos' conduct created an abnormal risk of loss that would seriously prejudice the interests of the bank and its depositors. For the foregoing reasons, Respondents fifteenth exception is rejected.
Respondents, in their sixteenth exception, incorporates exception number 15 and additionally argues that the enforcement actions on the alleged violations were barred because they predated the written agreement, and thus were allegedly waived or merged into the written agreement. This argument is rejected as an erroneous legal conclusion. Competent, substantial evidence supports the hearing officer's finding. See Heifetz, supra. In further ruling on the latter issue raised by the Respondents as to "merger", the ruling on exception number 12, above, is incorporated herein by reference. Based upon the foregoing, this exception is rejected.
The Respondents' seventeenth exception is an inaccurate statement of the hearing officer's finding in paragraph 110 of the Recommended Order which primarily dealt with the value or lack thereof associated with Bay Savings Bank stock. The Hearing Officer did not specifically "find" that the written agreement was violated in paragraph 110. The Respondents' exception is therefore rejected as immaterial and irrelevant to the overall analysis and findings of the Hearing officer in paragraph 110.
In exception number eighteen, Respondents' make a generalized statement that the hearing officer allegedly rejected "undisputed" testimony in favor of the Christos and instead relied upon "inferences" in finding negligence or intent to commit violations by the Christos. As the finder of fact, with the opportunity to observe the demeanor of a witness and place that witnesses testimony in the context of all the other evidence, the hearing officer is the sole judge of the credibility of a witness. Contrary to Respondents' assertion, intent not only can, but in the absence of a direct admission, must be proven by circumstantial evidence. See Tew v. Chase Manhattan Bank, 728 F. Supp. 1551, 1555 (S.D. Fla.), modified in part on other grounds, 741 F. Supp. 220 (S.D. Fla.). The Bowling case, cited by Respondents is factually and legally distinct from this case and therefore distinguishable. For these reasons, Respondents eighteenth exception is rejected.
Respondents except to paragraph 115 of the Recommended Order and contest the evidentiary findings of the hearing officer. Having reviewed paragraph 115, there is nothing within the context of that statement which specifically "finds" what the respondents allege to have been found in their exception. This exception is therefore rejected as an incorrect characterization of the hearing officer's finding, and therefore immaterial and irrelevant.
Respondents except to paragraph 116 of the Recommended Order and argue the relevancy of the hearing officer's finding therein which is, in essence, a reiteration of certain findings by the FDIC in a November 18, 1991 report of examination of Bay Bank which was introduced and accepted into evidence as Petitioner's exhibit 6. The Hearing Officer is in the best position to determine the initial relevancy of evidence in the presentation of the case and in the drafting of the Recommended Order. The finding appears relevant to the extent it is corroborative of the overall findings of regulatory problems at the bank. The Department therefore concurs with the hearing officer, and rejects Respondents' exception.
Respondents except to paragraph 128 and 129 of the Recommended Order. Those paragraphs of the Recommended Order are essentially findings which speak to the high level corporate positions held by the Christos in Bay Bank and hence, the extent to which they should legally be charged with knowledge of its business and affairs. Again, competent substantial evidence in the record supports the hearing officer's findings. (See e.g. prehearing stipulations of fact, 1B, C, and D). In addition, this exception contains much irrelevant argument. For these reasons, the twenty first exception is rejected. See also Heifetz, supra.
Respondents except to paragraph 130 of the Recommended Order. Paragraph 130 is similar to paragraphs 128 and 129 to the extent it finds that the Christos knew or should have known that certain loans which were made were done so pursuant to terms dissimilar to those afforded the ordinary bank customer receiving a letter of credit. They appear to argue with the hearing officer's findings involving the weight he, the hearing officer, accorded the evidence introduced during the final hearing. The hearing officer is in the best position to evaluate the evidence and render ultimate findings of fact. Based upon the evidence introduced at the final hearing regarding the positions held by the Christos at Bay Bank, the hearing officers finding is supported by competent substantial evidence in the record. For these reasons, this exception is rejected. See Heifetz, supra.
Respondents' twenty third exception simply references paragraphs 132 through 135 of the Recommended Order with a reference to " see 15,16,17,18,19.21 and 22 above". The undersigned is unable to ascertain as to precisely what point Respondents except; therefore, this exception is rejected as unintelligible and therefore immaterial and irrelevant.
Respondents, in the twenty fourth exception, except to paragraph 140 of the Recommended Order. The respondents cite no evidence or law in support of their generalized assertions of alleged inconsistent agency action. The Department concurs with the hearing officer's finding and reasoning, which is supported by competent, substantial evidence, and therefore rejects this exception. See Heifetz, supra.
Exceptions as to Conclusions of Law
Respondents except to paragraph 143 of the conclusions of law of the Recommended Order which paragraph contains mixed statements of law and fact. To the extent such statements are fact related, they are supported by competent, substantial evidence. To the extent such statements are conclusions of law, the Department nevertheless concurs with the hearing officer's reasoning, adopts same, and rejects Respondents' exception. The cases cited by Respondents are both legally and factually distinguishable from this case.
Respondents except to paragraphs 144 and 145 of the Recommended Order. The Department rejects this exception based upon its ruling to Respondents' exception number 25.
Respondents, in their twenty seventh exception, except to paragraph
148 of the Recommended Order. In paragraph 148, the hearing officer found that the department had proven that the cost of examination and supervision was
$67,494.20 and, in essence, was entitled to collect those costs. Respondents attempt to reargue the evidence which the hearing officer has already weighed and evaluated as is his function in reaching ultimate findings. Nevertheless, as will be discussed hereafter in ruling upon DBF's exceptions to certain conclusions of law, the subject matter of this conclusion has been rendered moot by agreement of both DBF and Bay Bank. This exception is therefore rejected.
The Respondents except to paragraph 149 of the Recommended Order which conclusion concerns the Department's administrative complaint filed against Bay Bank for cease and desist order, examination fees and costs. As will be discussed hereafter in ruling on DBF's exceptions to certain conclusions of law, the subject matter of this conclusion has been rendered moot by agreement of DBF and Bay Bank. For that reason, Respondent's exception is rejected.
The Respondents argue, in their twenty ninth exception, with the conclusion of the hearing officer in paragraph 167 of the Recommended Order which merely cites section 655.037(3), Florida Statutes, and then indicates that "decisions recommended in disciplining the Christos have taken these requirements into account." Respondents' exception is tantamount to argument and speculation on behalf of the respondents. It is therefore rejected as immaterial and irrelevant. In addition, this exception is contrary to the law. Section 655.037(3), Florida Statutes, does not limit itself to evidence of actual loss as Respondents contend. That section also concerns itself with whether the institution will "likely" suffer substantial loss or other substantial damage or whether the interests of the depositors "could be" seriously prejudiced by reason of misconduct, or whether the conduct involves a willful disregard for the safety and soundness of the institution. To the extent of Respondents' argument, this exception is thus likewise rejected as contrary to the law.
The Respondents except to paragraph 168 of the Recommended Order. In their exception, they argue with the weight of the evidence which the hearing officer has already weighed and evaluated in reaching his ultimate conclusion. This is particularly within the province of the hearing officer. See Heifetz, supra. The Department concurs with the hearing officer's findings, adopts same, and rejects this exception for the foregoing reasons.
In their exception to paragraphs 169 and 170, the Respondents merely reference their exception to number 23 which previous exception further incorporates, merely by numerical reference, seven other previous exceptions.
The Department is unable to discern what point the respondents are excepting to insofar as it is unintelligible. For this reason, this exception is therefore rejected as immaterial and irrelevant.
In their thirty second exception, the Respondents object to paragraphs
172 through 174 of the Recommended Order. Again, the respondents argue with the weight of the evidence. Deference must be accorded to the hearing officer's findings in this regard. See Heifetz, supra. There exists competent, substantial evidence in the record in support of the hearing officers findings of intentional violations by the Christos, based in part upon, to wit: 1) The substantial banking experience and background of the Christos (Prehearing stipulation, p. 15, para. 2, p. 4, para. 15; see also T. 1561; 1308-09) 2) The familiarity of the Christos with their financial statements and those of their related interests ( see, e.g., T. 1339; 1370-1371; 3) their familiarity with Bay Banks' loan policies and procedures (see, e.g., testimony of Christo, Jr., (T. 1459-1460; exhibit P26A-Pg. 111); and knowledge relative to the issuance of letters of credit at Bay Bank (T. 1480-1481; see also exhibit P32). In light of the above, and the other competent, substantial evidence of record, the Department concurs with the hearing officer's reasoning and adopts same. For these reasons, this exception is rejected.
The Respondents except to paragraph 175 of the Recommended Order. For the reasons set forth in ruling on respondent's similar exception number 20, this exception is rejected.
In their thirty fourth exception, the Respondents argue with the hearing officer's choice of the adjective "grave" in characterizing the evidence and violations concerning the Christos in paragraph 178 of the Recommended Order. In their exception, respondents again attempt to argue as to the weight of the evidence. Since the preparation of the Recommended Order is within the hearing officer's province, it is believed it is likewise within his discretion to choose the adjectives he believes apply in evaluating the factual findings. After a review of the entire record, the Department concurs with the hearing officer's characterization and evaluation of the evidence regarding the violations, adopts same, and this exception is rejected. See also Heifetz, supra.
In their thirty fifth exception, the Respondents argue that the Christos cannot be held responsible for compliance with the 1989 Bay Bank Board resolution. In light of the positions held by the Christos at Bay Bank, this exception is rejected as contrary to the law and the facts.
In their thirty sixth and final exception, the Respondents simply make a statement. After a review of the entire record, and in response to their statement, it is apparent that substantial discovery was undertaken by both parties. The Department concurs with the hearing officer's reasoning in paragraph 181 of the Recommended Order, adopts same, and this exception is rejected.
RULING ON EXCEPTIONS FILED BY DBF
On May 16, 1994, DBF filed its exceptions to the Recommended Order. The Agency Head's rulings on those numbered exceptions follow:
Exceptions as to Findings of Fact
DBF's exception number 1 is to finding of fact number 2 of the Recommended Order, which finding, DBF asserts, is not supported by competent, substantial evidence. This exception is agreed to by Respondents in their "Response ... to Exceptions filed by Department of Banking and Finance" (hereinafter "Response"). The exception is adopted, and finding of fact number
2 will be corrected to read as follows:
Consistent with long-standing practices in examining Bay Bank and other financial
institutions over which the Department has had jurisdiction, it performed an examination to assess Bay Bank's financial condition and banking practices as of the close of business on March 31, 1991.
DBF's exception number 2 is to Finding of Fact number 9 which finding states that "in March 1991.. the Department equated the assigned aggregate score of 4 with unsafe and unsound practices by Bay Bank." DBF argues this Finding is not supported by competent, substantial evidence. The Respondents agree with this exception (see "Response"). Therefore, DBF's exception is accepted, and Finding of Fact #9 shall, in the Findings of Fact, be corrected to read as follows:
9. Upon completion of the examination of the bank as of the close of business on March, 1991, as in its general experience with prior examinations, the Department equated the assigned aggregate score of 4 with unsafe and unsound practices by Bay Bank. This opinion was held when taking into account the specific conditions within the bank found at the time of the examination and as set forth in the post-examination written report.
DBF, in their third exception, argues with findings of fact number 46 through 51 of the Recommended Order wherein the hearing officer characterized certain correspondence and communications between DBF and Bay Bank concerning invoices for costs, extensions of time and further advising the bank of potential late fees and fines as "free form". The term "free form" is necessarily a legal conclusion by the hearing officer. It is therefore rejected as contrary to the law. To the extent one may consider it a finding of fact, it is rejected as not supported by competent, substantial evidence. See Heifetz, supra. This exception is thus granted and the term "free form" shall be considered stricken in the findings of fact in paragraphs 46 and 49. The second sentence of paragraph 50 shall be considered deleted. The reference to free form in paragraph 51, first sentence, shall be deleted. The phrase "was free form and" shall be considered deleted from the second sentence, paragraph 51.
DBF's exception number 4 is to Finding of Fact number 64, which finding states that certain correspondence between DBF and the Bank "stated that the written agreement had an effective date of November 29, 1991." DBF asserts the date is incorrect. Respondents agree (see "Response") that the date is incorrect and the record so reflects. The exception is therefore accepted and finding of fact number 64 shall be corrected by deleting the word "November" and substituting the word "September" in paragraph 64 (see exhibit P34).
Exceptions to Conclusions of Law
DBF has filed an exception to conclusions of law numbered 150 through
154 of the Recommended Order which relate to DBF's administrative complaint for examination fees against Bay Bank. The Agency Head, in his final order, may, of course, "reject or modify the conclusions of law and interpretation of administrative rules in the recommended order." Section 120.57(1)(b)(10), Florida Statutes (1993) University Community Hospital v. Department of Health and Rehabilitative Services, 610 So.2nd 1342, 1346-47 (Fla. 1st DCA 1992). The hearing officer in the aforementioned paragraphs sets forth his legal interpretation as to the assessment of examination fees, late fees and fines for intentional late payment pursuant to section 655.045(1)(b) and (d), Florida Statutes. He concluded that no such fees could be assessed until a final order issued from a 120.57, F.S. hearing wherein it was found that unsafe and unsound practices had occurred thus warranting imposition of the examination fee. If such a fee was imposed by final order and the institution then failed to pay the fee within thirty days from the date of the final order, assumably then, according to the hearing officer's interpretation, another 120.57, F.S. hearing would be necessitated to address late charges or fines for intentional late payment. DBF's exception sets forth a compelling and persuasive argument that the accrual of such fees and fines can and should occur following the 31st day after a financial institution's receipt of a DBF notice (such as an invoice) that examination fees are due and that a hearing officer, in a single 120.57,
F.S. hearing can and should determine the appropriateness of the fees for the exam based upon findings of unsafe and unsound practices as well as determine late payment penalties and fines calculated from that previous 31st day forward until payment in full. While recognizing the persuasiveness of DBF's argument, both DBF and Bay Bank previously filed on May 4, 1994, before the Agency Head, a "Notice of Stipulation and Settlement" which, by its terms "renders moot all aspects of the Recommended Order relating to the relief sought by DBF against the Bank except for the Cease and Desist Order sought by DBF." The notice further provided for entry of a stipulated cease and desist order which was in fact docketed on April 19, 1994. In light of the foregoing agreement, it is unnecessary to accept or reject DBF's exception insofar as it is now moot. In a similar manner, the agency head-will neither accept or reject the conclusions of law number 147 through 154 of the Recommended Order as they relate to Bay Bank insofar as such conclusions are now moot.
DBF has further excepted to conclusions of law 155 through 158, contending that there is no legal basis for the legal conclusion that, by entering into the written agreement with Bay Bank (Exhibit P19), DBF's ability to enter a cease and desist order is circumscribed as the hearing officer reasoned therein. Upon a review of the stipulation and consent agreement, particularly section 7 thereof (P18), which was entered into in connection with the written agreement, there was a provision reserving DBF's right to "take such further action. . . against Bay Bank and the directors as the Department deems necessary and appropriate . . to prevent any violation of laws relating to financial institutions." This provision was incorporated by reference into the Written Agreement. DBF, in its exception, presents a compelling argument in light of the above-quoted language that DBF's rights to pursue a cease and desist order were not as limited as the hearing officer found. This exception is accepted to the extent it is relevant and applicable to the Administrative Complaint for Removal and Prohibition and Cease and Desist Order filed in part against the Christos. Conclusions of law numbered 155 through 157 shall therefore be stricken and conclusion of law number 158 shall be modified as set forth hereafter.
DBF's third exception, though unnumbered, relates to an evidentiary ruling contained on page 4 of the Recommended Order, wherein the Hearing Officer held that Exhibit 300 is admitted. A review of the record, particularly T. 2067, reveals that the Hearing Officer limited the admission of the curriculum vitae of Mr. Huggins to the statement of education. For that reason, this exception is granted to the extent the Hearing Officer's written ruling appears to depart from his prior oral ruling.
FINDINGS OF FACT
Having reviewed the entire record of this proceeding and having ruled upon all of the filed exceptions, the Department therefore incorporates by reference and adopts the Findings of Fact set forth in the Recommended Order, as such findings relate to the Christos, with the following modifications consistent with prior rulings on Exceptions:
Finding of Fact Number 2 shall read:
Consistent with long-standing practices in examining Bay Bank and other financial institutions over which the Department has had jurisdiction, it performed an examination to assess Bay Bank's financial condition and banking practices as of the close of business on March 31, 1991.
Finding of Fact Number 9 shall read:
Upon completion of the examination of the bank as of the close of business on March, 1991, as in its general experience with prior examinations, the Department equated the assigned aggregate score of 4 with unsafe and unsound practices by Bay Bank. This opinion was held when taking into account the specific conditions within the bank found at the time of the examination and as set forth in the post-examination written report.
Paragraphs 46 through 51 of the Recommended Order shall be modified as follows:
Paragraph 46. Strike the words "free form" from the third line of this paragraph.
Paragraph 49. The words "free form" should be stricken from the fifth line in the paragraph.
Paragraph 50. Strike the second sentence in this paragraph.
Paragraph 51. Strike the word "free form" from the first sentence; and strike the phrase "was free form and"
from the second sentence.
Finding of Fact Number 64 is corrected by substituting the word September in place of the word November.
There is competent, substantial evidence to support the Findings of Fact, as amended.
CONCLUSIONS OF LAW
The Department incorporates by reference and adopts the conclusions of law set forth in the Recommended Order as such conclusions relate to the Christos, with the following modifications consistent with prior rulings on the exceptions:
Conclusions 147 through 154. These conclusions, to the extent they relate to Bay Bank, are neither accepted or rejected insofar as they are now moot by prior agreement.
Conclusions 155 through 157: These conclusions are rejected as contrary to the law.
Conclusion of law 158 is modified as follows:
Upon the facts found, the Department may enter an order requiring Bay Bank, its officers, directors, committee members, employees and other participating persons to cease and desist unsafe and unsound practices, and cease violating laws related to the operation of the financial institution which shall be discussed subsequently. This determination takes into account the opportunities for this choice considered in accordance with Section 655.021, Florida Statutes (1991), as reenacted through Section 655.031, Florida Statutes (1992 Supp.).
There is competent, substantial evidence to support the conclusions of law, as modified.
ORDER
BASED ON THE FOREGOING Findings of Fact and Conclusions of Law, it is therefore ORDERED that:
John Christo, Jr., is prohibited from participating in Bay Bank or any other financial institution regulated by the Department as an officer or in a similar position for Bay Bank or any other financial institution or becoming a director in any other financial institution and that restricts Christo, Jr., in his directorship at Bay Bank from participating in any decision to select or dismiss Bay Bank officers or directors; and
John Christo, III, is prohibited from participating in Bay Bank or any other financial institution regulated by the Department as an officer or in a similar position for Bay Bank or any other financial institution or becoming a director in any other financial institution and that restricts Christo, III, in his directorship at Bay Bank from participating in any decision to select or dismiss Bay Bank officers or directors.
DONE and ORDERED this 26th day of July, 1994, in Tallahassee, Florida.
GERALD A. LEWIS, as Comptroller and Head of the Department of Banking and Finance
ENDNOTES
1/ The parties filed three joint motions to enlarge time to file extensions, responses to exceptions and proposed final orders and the deadlines for filing same were, by separate orders, extended accordingly. The third and last Order extended the time for filing exceptions to May 16, 1994; Responses to exceptions to May 26, 1994 and proposed final orders to June 9, 1994. While normally final orders pursuant to S120.59(1), F.S. are to issue within 90 days after submission of the Recommended Order, the stay order imposed by the First District Court of Appeals in Case 93-2669 as well as the several extensions requested by the parties served to extend the statutory and Rule 3-7.012, F.A.C. time periods accordingly. Issuance of a final order outside the 90 day period is considered, in an enforcement case such as this one, harmless error.
Department of Business Regulation, Division of Para-Mutual Wagering v. Hymen 417 So.2d 671 (Fla. 1982) on remand 431 So.2d 603 (3rd DCA 1983).
2/ The references to the Final hearing transcript, as utilized herein, shall be "T." followed by a page or line number; references to exhibits shall be as previously designated numerically by the parties prefaced by a P or R. Multipaged exhibits shall be prefaced by "Pg." and a number.
NOTICE OF RIGHTS
A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DEPARTMENT OF BANKING AND FINANCE, SUITE 1302, THE CAPITOL, TALLAHASSEE, FLORIDA 32399-0350, AND A SECOND COPY ACCOMPANIED BY THE FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES THE NOTICE OF APPEAL MUST BE FILED WITHIN THIRTY (30) DAYS OF RENDITION OF THIS FINAL ORDER TO BE REVIEWED.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true copy of the foregoing Final Order and Notice of Rights was served by U.S. Mail, postage prepaid upon Alan C. Sundberg, Esquire, and Robert Pass, Attorneys, c/o Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., P.O. Box 3239, Tampa, Florida 33601, Attorneys for Petitioner; William Friedlander, Esquire, 3045 Tower Court, Tallahassee, Florida 32303, S. Craig Kiser and Raymond Vickers, Esquire, 424 East Call Street, Tallahassee, Florida 32301, Attorneys for Respondents John Christo, III and John Christo, Jr.; and Jack G. Williams, Esquire, 502 Harmon Avenue, P.O. Box 2176, Panama City, Florida 32402, Attorney for Bay Bank, this 26th day of July, 1994.
H. RICHARD BISBEE Deputy General Counsel
Office of the Comptroller The Capitol, Suite 1302
Tallahassee, Florida 32399-0350
(904) 488-9896
cc: Terrence Straub, Director Division of Banking
William G. Reeves, General Counsel Department of Banking and Finance
Albert T. Gimbel, Chief Banking Counsel Department of Banking and Finance
Charles C. Adams, Hearing Officer Division of Administrative Hearing
| Issue Date | Proceedings |
|---|---|
| Jul. 26, 1994 | Final Order filed. |
| Feb. 04, 1994 | Cover Letter to A. Gimbel from M. Lockard (& enclosed hearing exhibits) sent out. |
| Feb. 01, 1994 | Recommended Order sent out. CASE CLOSED. Hearing held February 8, 1993 and concluding On July 7, 1993. |
| Nov. 02, 1993 | Department of Banker`s Notice of Filing filed. |
| Nov. 02, 1993 | Recommended Order w/Memorandum of Law (From S. Craig Kiser); Proposed Recommended Order filed. (From Alan C. Sundberg) |
| Aug. 20, 1993 | Deposition of James B. Goodson filed. |
| Aug. 16, 1993 | Transcript (27 Vols) filed. |
| Jul. 28, 1993 | Order Denying Motion for Disqualification of Agency Head filed. |
| Jul. 28, 1993 | Deposition of Stanley M. Huggins filed. |
| Jul. 27, 1993 | Exhibits filed. (From Robert Pass) |
| Jul. 27, 1993 | Order sent out. (Re: PFO's) |
| Jul. 26, 1993 | Letter to CCA from Robert Pass (re: Petitioner`s exhibits that was received into evidence) filed. |
| Jul. 23, 1993 | Letter to CCA from C. Kiser (re: Proposed Recommended Orders) filed. |
| Jul. 20, 1993 | Letter to CCA from Robert Pass (re: submitting PRO) filed. |
| Jul. 20, 1993 | Letter to CCA from Robert Pass (re: Exhibits) filed. |
| Jul. 19, 1993 | Letter to CCA from Robert Pass (re: exhibits); Confidential, Respondents' Index to Document Boxes I-III filed. |
| Jul. 07, 1993 | (2) Letters to CCA from A. Sundberg dated 7/7/93 (re: July 1 Hearing)filed. |
| Jun. 21, 1993 | CASE STATUS DOCKETED: Hearing Partially Held, continued to date not certain. |
| May 19, 1993 | Order sent out. (motion to quash is granted) |
| May 13, 1993 | Petition for Writ of Prohibition filed in the 1st DCA filed. |
| Mar. 31, 1993 | Notice of Hearing sent out. (hearing set for 5-14-93; 9:00am; Talla) |
| Mar. 31, 1993 | Amended Notice of Hearing sent out. (hearing set for June 7-9, and June 21 and 22, 1993; 9:00am; Talla) |
| Mar. 30, 1993 | Respondents` March 30, 1993 Exhibit List filed. |
| Mar. 17, 1993 | CC Letter to William A. Friedlander from Alan C. Sundberg (re: ltr of confirmation on oral communication to Lex Hood regarding conflict w/case) filed. |
| Mar. 11, 1993 | Amended Notice of Hearing sent out. (hearing set for March 22-26, 1993; 9:00am; Talla) |
| Mar. 02, 1993 | (Respondents) Response to Motion to Quash Subpoena Duces Tecum filed. |
| Feb. 26, 1993 | Respondent`s Response to Department`s Motion to Exclude Certain Exhibits and Alternative Motion for Limited Adjournment filed. |
| Feb. 25, 1993 | Department of Banking & Finance's Motion to Exclude Certain Exhibits and Alternative Motion for Limited Adjournment filed. |
| Feb. 25, 1993 | Respondents' Motion to Compel, Motion to Continue Final Hearing and Motion for Sanctions w/Exhibits A-C filed. |
| Feb. 24, 1993 | Department of Banking and Finance`s Motion to Overrule or to Treat As Waived Objections to Deposition Transcripts filed. |
| Feb. 15, 1993 | Amended Notice of Hearing sent out. (hearing set for March 1-5, 1993;9:00am; Talla) |
| Feb. 12, 1993 | CASE STATUS: Hearing Partially Held, continued to March 1-5, 1993; 9:00am; Talla) |
| Feb. 10, 1993 | (Dept of Banking) Motion to Quash Subpoena Duces Tecum filed. |
| Feb. 08, 1993 | (Petitioner) Prehearing Stipulation filed. |
| Feb. 05, 1993 | (Respondents) Motion for Disqualification of Agency Head; Memorandum of Law in Support of Motion for Disqualification of Agency Hearing filed. |
| Feb. 04, 1993 | Order sent out. |
| Feb. 04, 1993 | Order sent out. |
| Feb. 03, 1993 | (Petitioner) Motion to Exclude Testimony and for Fees and Costs filed. |
| Feb. 03, 1993 | (Respondent) Emergency Motion for Continuance and for Order Extending Discovery Deadline filed. |
| Feb. 02, 1993 | Department of Banking`s Request for Ruling on Respondents` "Motion for Closure and to Establish Discovery and Final Hearing as Confidential" filed. |
| Jan. 21, 1993 | (J. Christo) Motion to Quash Subpoena Duces Tecum filed. |
| Jan. 20, 1993 | Order sent out. (Petitioner`s motion to compel depositions, or alternatively, to exclude testimony is denied) |
| Jan. 19, 1993 | Department of Banking`s Motion to Compel Deposition, or, alternatively, to Exclude Testimony filed. (filed by A. Sundberg) |
| Dec. 11, 1992 | Order sent out. (hearing rescheduled for 2-8-93; 9:00am; Talla; February 9-12 are also reserved) |
| Dec. 10, 1992 | (Petitioner) Consented to Motion for Continuance of Final Hearing filed. |
| Dec. 07, 1992 | Joint Motion and Stipulation for Continuance of Final Hearing and Extension of Discovery Deadline filed. |
| Dec. 03, 1992 | Deprtment of Banking's Response to Respondents' (Amended) Motion to Shorten Time to Respond to Respondents' Second Set of Interrogatories; Answers and Objections of The Department of Banking to Respondents' Second Set of Interrogatories; Department of B |
| Dec. 02, 1992 | (Irene Christo) Motion to Quash Subpoena Duces Tecum filed. |
| Dec. 02, 1992 | (Inrene Christo) Motion to Quash Subpoena Duces Tecum filed. |
| Dec. 01, 1992 | Respondents` Motion to Quash Subpoenas and for Protective Order; Motion to Compel Production of Documents filed. |
| Nov. 30, 1992 | (Respondents) Amended Motion to Shorten Time To Respond to Respondents' Second Set of Interrogatories filed. |
| Nov. 30, 1992 | Protective Order sent out. (With Affidavit of Compliance with Order Limiting Disclosure of Confidential Information) |
| Nov. 30, 1992 | Order sent out. (Motion granted; Notice quashed) |
| Nov. 30, 1992 | Subpoena Ad Testificandum (3) filed. (From Donald R. Alexander) |
| Nov. 25, 1992 | (Respondents) Motion for Closure and to Establish Final Hearing, Preliminary Proceedings, Case Files, and Discovery As Confidential; Supplemental Answers to Expert Interrogatories filed. |
| Nov. 24, 1992 | CC Motion to Shorten Time to Respond to Respondents' Second Set of Interrogatories; Notice of Service of Interrogatories filed. |
| Nov. 23, 1992 | Letter to DRA from Robert Pass (re: ltr of November 20, 1992 ) filed. |
| Nov. 23, 1992 | (Respondents) Response to Department`s Motion for Protective Order for Gerald Lewis With Respondents` Motion to Compel filed. |
| Nov. 23, 1992 | (ltr form) Production of Documents for In Camera Inspection filed. |
| Nov. 23, 1992 | Department of Banking's Motion for Protective Order filed. |
| Nov. 19, 1992 | Order sent out. |
| Nov. 18, 1992 | Transcript filed. |
| Nov. 17, 1992 | (Petitioner) Response of The Department of Banking to Respondents` November 10 Motions and Motion to Strike Portions Thereof filed. |
| Nov. 17, 1992 | Notice of Appearance filed. (From William A. Friedlander) |
| Nov. 17, 1992 | (Respondent) Notice of Taking Deposition filed. |
| Nov. 16, 1992 | Transcript (Vols 1&2) filed. |
| Nov. 16, 1992 | Order Granting Motion sent out. (parties have agreed that the depositions of Respondent`s to be taken on 11-18-92, shall remain confidential until further order of the undersigned) |
| Nov. 13, 1992 | (2) Notice of Taking Deposition; Department of Banking's Motion for Protective Order filed. |
| Nov. 13, 1992 | Order sent out. |
| Nov. 13, 1992 | (Confidential) Documents filed. (From Respondent) |
| Nov. 10, 1992 | Respondents` Response to Department`s Motion to Compel and for Protective Order, With Respondents` Motion for Protective Order, for Continuance of Final Hearing, and for Stay of Discovery by the Department filed. |
| Nov. 09, 1992 | Response of The Department of Banking and Finance to Respondents' Motion to Compel filed. |
| Nov. 05, 1992 | Department of Banking's Motion to Compel Depositions filed. |
| Nov. 05, 1992 | Department of Banking's Motion for Protective Order for Depositions Scheduled for November 6, 1992 filed. |
| Nov. 03, 1992 | Respondents` Memorandum of Law in Support of Motions to Compel and Related Discovery Motions (Corrected) w/cover ltr filed. |
| Oct. 30, 1992 | (Petitioner) Motion to Shorten Time to Respond to Department`s Second Set of Interrogatories; Notice of Service of Interrogatories filed. |
| Oct. 30, 1992 | Order sent out. (Motion to Compel, granted) |
| Oct. 29, 1992 | Department of Banking's Motion for Extension of Time filed. |
| Oct. 28, 1992 | Respondents' Memorandum of Law in Support of Motions to Compel and Related Discovery Motions filed. |
| Oct. 26, 1992 | Order sent out. (motion for protective order granted in part) |
| Oct. 23, 1992 | (Respondents) Motion to Compel Production of Documents w/Index of Exhibits & Composite Exhibits filed. |
| Oct. 23, 1992 | Response of The Department of Banking to Bay Bank`s Motion for Protective Order filed. |
| Oct. 23, 1992 | (Bay Bank) Response of The Department of Banking to Bay Bank`s Motion for Protective Order filed. |
| Oct. 22, 1992 | (Respondent) Motion for Protective Order filed. |
| Oct. 21, 1992 | Second Notice of Hearing sent out. (hearing set for 12-15-92; 9:00am; Talla; December 16-18, 21 and 22, 1992 are also reserved) |
| Oct. 20, 1992 | Transcript filed. |
| Oct. 16, 1992 | (Petitioner) Notice of Taking Deposition (3) filed. |
| Oct. 09, 1992 | Letter to DRA from S. Craig Kiser (re: filing Motion to Compel Discovery) filed. |
| Oct. 08, 1992 | Original Complaint w/Exhibits filed. (From Albert T. Gimbel) |
| Oct. 01, 1992 | Department of Banking`s List of Documents Withheld As Privileged or Otherwise Confidential filed. |
| Sep. 29, 1992 | Order sent out. (Consolidated cases are: 92-2455 & 92-3744; hearing to be held 12/15-18/92; Talla) |
| Sep. 23, 1992 | (Respondents) Response and Opposition to Department of Banking`s Proposed Agenda for Status Conference for September 25, 1992 filed. |
| Sep. 22, 1992 | (Respondent) Motion to Strike Notice of Hearing filed. |
| Sep. 22, 1992 | Department of Banking's Notice of Objections to Proposed Subpoena Duces Tecum to William Ryan, Staff Director, Commerce Committee, Florida House of Representatives; Department of Banking's Notice of Objectionsto Proposed Subpoena Duces Tecum to Gerald A. |
| Sep. 22, 1992 | Department of Banking`s Notice of Objection to Proposed Subpoena Duces Tecum to James T. Moore, Commissioner, Florida Department of Law Enforcement; Department of Banking`s Proposed Agenda for Status Conference for September 25, 1992 filed. |
| Sep. 18, 1992 | Motion of the Department of Banking & Finance to Set Discovery Cutoff Date and Hearing Date and Supporting Memorandum filed. |
| Sep. 09, 1992 | CC Letter to Robert Pass from S. Craig Kiser (re: response to a $4,101.70 photocopying bill form the department) filed. |
| Sep. 03, 1992 | Letter to DRA from K. Bittick (re: status conference & motion hearing) filed. |
| Aug. 18, 1992 | Respondent`s Response in Opposition to Motion to Consolidate filed. |
| Aug. 06, 1992 | Order sent out. (Motion for Continuance granted, hearing cancelled; Responses to all other motions due 8/14/92) |
| Aug. 03, 1992 | The Department of Banking`s Request for Oral Argument on Its Motion to Consolidate; The Department of Banking`s Motion for Consolidation of This Proceeding With Case No. 92-3744 and for Continuance of the August 24, 1992 Hearing filed. |
| Aug. 03, 1992 | (ltr form) Request for Continuance filed. (From S. Craig Kiser) |
| Jul. 22, 1992 | (Respondent) Notice of Service of Interrogatories filed. |
| Jul. 20, 1992 | (Respondent) Response of Department of Banking and Finance to Request for Production of Documents and Things filed. |
| Jul. 16, 1992 | Respondent`s Interrogatories to Complainant Department of Banking and Finance filed. |
| Jun. 22, 1992 | Notice of Appearance filed. (From Alan C. Sunberg) |
| Jun. 17, 1992 | (Petitioner) Request to Department of Banking and Finance for Production of Documents filed. |
| May 07, 1992 | Joint Response to Initial Order filed. |
| May 07, 1992 | Joint Response to Initial Order filed. |
| May 06, 1992 | Notice of Hearing sent out. (hearing set for Aug 24-27, 1992; 9:00am; Talla) |
| May 06, 1992 | Order of Prehearing Instructions sent out. |
| May 04, 1992 | Ltr. to DRA from Ken Muszynski re: Reply to Initial Order filed. |
| Apr. 23, 1992 | Initial Order issued. |
| Apr. 21, 1992 | Agency referral letter; Petition for Formal Proceeding; Administrative Complaint for Recovery of Costs of Examination, Late Fees, and Administrative Fine; Supporting Documents filed. |
| Feb. 08, 1992 | Order sent out. (hearing date to be rescheduled at a later date; extension of discovery deadline is granted) |
| Issue Date | Document | Summary |
|---|---|---|
| Jul. 26, 1994 | Agency Final Order | |
| Feb. 01, 1994 | Recommended Order | Recommended pay costs to examine bank but not late penalties. Also prohib- ition and restrictions of affiliation by bank officials to do banking in FL. |
